Supply Chain Automotive Industry Essay Example

Supply Chain Automotive Industry Essay Example Supply Chain Automotive Industry Paper Supply Chain Automotive Industry Paper Abstract While sometimes characterized as â€Å"stable† the World automotive industry continues to experience dynamic change- change that sweeps across national borders. These changes have struck in particular, the U. S and the Japanese automotive industries. To succeed, auto manufacturers must manage large and complex supply chains, spanning many geographic regions, and pursue opportunities in diverse national markets. While national policies play an important role in shaping the environment for local manufacturing operations and resulting products, cost competition increasingly drives the industry toward global product offerings. This report explores several important dimensions of the forces of change facing the U. S. and the Japanese auto industry. We will present a comparison between the Asian and North American automobile manufacturing practices and in particular, the two companies, Ford and Honda Motors. A comparison will be made between the two markets on how each handles product varieties, their delivery methods from the factory to consumers, as well as the markets channels used. A comprehensive study is made to compare the automobile product varieties in the two regions and explain how customer choices and the effect of competition have led to this diversification in the products. The importance of marketing channels has gone largely unnoticed. For this purpose, marketing channel strategies will be discussed in detail. The relationships among suppliers, customers and logistics service providers will also be analyzed, in other words, the sourcing and the in-bound supply strategies. North America Asian ? Ford Motors â€Å"Ford Taurus† ?Honda Motor â€Å"Honda Accord† Table 1: North American and Asian automakers to be analyzed in this project These two models have been chosen based on the annual report posted at the corporate sites for both companies. Honda Corporate site shows that Honda Accord achieved its highest sales recently. The choice of Ford Taurus comes from the many similarities it has with Honda Accord concerning its size, price and de mands. iii 1. Introduction U. S. Sales of Honda Automobiles (by Model) Worldwide vehicle production ability is growing today more rapidly than it has in the last 20 or 30 years, and this has interesting implications for the world’s auto makers. Clearly most automobile manufacturers are very optimistic about the willingness of consumers to buy up this capacity. While environmental issues exist, they are not being factored into investment decisions about increases in car production capacity. At present, the world has the capability of producing 15 to 20 million more vehicles than it is currently buying. The last four years have been extraordinary for U. S. auto companies, earning them every year between 13 and 14 billion dollars. This is not bad financial performance for an industry that was viewed as dead in 1990, when both GM and Chrysler were on the verge of filing bankruptcy. This year again will be an outstanding year both for Ford and GM. In examining how the Japanese and U. S. auto industries have changed and adjusted to adversity, we find that the turnaround of the Japanese industry has had more to do with the value of the currency than it has had to do with fundamental change for several companies. While Japanese automobile companies have suffered fairly staggering losses over the last few years, both 2001 and 2002 showed improvement because of the stronger dollar. What happened to Japanese manufacturers during the bubble economy? First, all had huge, very unrealistic expectations about where the Japanese market was going. Japan is as saturated with motor vehicles as the United States, and yet during the last few years virtually every Japanese automaker built another factory to expand capacity and maintain market share. Companies rationalized this massive increase in capacity by believing that somehow their company’s market share would grow and another company’s market share would shrink. But that theory works only if there are other companies around willing to give up market share. This, of course, is no longer the case; the world has changed and it has changed very dramatically. ?1 In the case of the U. S. industry, however, substantial fundamental changes have occurred within the automobile companies themselves, allowing them to reduce excess capacity and in the process adjust their break-even points. Over the last decade and a half, for example, Ford has closed enough capacity and start to invade the Japanese markets. In terms of productivity in the factory, Japanese also have benefited from very close relationships with suppliers. In fact, they were able to get new cars on the market every four years, mainly because their suppliers were linked to the automobile company in familial relationships that entrusted the supplier to do a great deal of the engineering work for the manufacturer. In effect, the Japanese shifted a lot of their fixed costs onto their suppliers and became variable cost assemblers. That has been hard to replicate outside Japan because U. S. automobile companies were very highly vertically integrated. But companies such as GM and Ford are no longer as vertically integrated. The company is getting rid of this business, pushing the engineering responsibilities onto their suppliers. In sum, supplier relationships in the United States are firming up and look very much like the structure in Japan. Parts manufacturers now have specific expertise and technical capability to absorb engineering work from the auto companies. As a result, companies are now looking to five-year product cycles. Suddenly what factors things that have distinguished Japanese auto manufacturers in the past and enabled them to gain market share are being matched by U. S. and European companies. So what constitutes competitive advantage? For a long time the Japanese were able to offset their excess capacity at home with higher exports throughout the world but that export potential is no longer there, especially with regard to the developed markets of North America and Western Europe. And in most markets of the developing world, the growth of home auto industries has hampered the ability of Japanese manufacturers to shift surplus capacity away from Japan. Even though exports are up substantially this year because of the weak yen, they are no where near the levels of a few years ago and certainly not high enough to absorb the excess capacity. Another trend influencing the automotive industry is consumer preference for certain features. Consumers are choosing safety (e. g. , airbags, antilock brake systems) with amenities (e. g. air conditioners, powerful engines, power steering, and compact disc players) over vehicles whose primary appeal is size and interior space. Factors influencing customer choices are performance, suitability to personal needs, and family lifestyle, safety, comfort, and appearance. Consumers are showing a taste for the practical, as embodied in the Toyota Camry and the Ford Taurus, both top sellers in the medium price range. Japanese automaker s, however, have 2 increased market share in the United States through new â€Å"luxury† nameplates: Lexus, Infiniti, and Acura. In addition, previously â€Å"compact† models such as Toyota’s Camry and Honda’s Accord have become larger and more luxurious. One of the most critical issues for the automotive industry today is competitiveness in cost, quality, and product offerings. Companies cannot survive in today’s market if they neglect any of these areas. Since that time, differences between the United States and Japan in productivity and quality have shrunk and effectively disappeared in new product development lead time, pointing to a dramatic overall improvement in the competitive position. Trends in the practices of the foreign competitors show an important part of the overall picture. Japanese trends show a strong emphasis on total product quality (e. g. , Honda, Infiniti), perhaps at the expense of lead time and development productivity (total engineering hours per development project). However, in part because of the rise in the value of the yen, the pendulum between â€Å"cost is no object† quality and cost-effectiveness is rapidly swinging toward the latter. Nevertheless, the Japanese demonstrate a strong command of the link between product design and lean production. The automobile is one of the most complex consumer products in existence. The automotive manufacturing process serves as the â€Å"moment of truth† for the entire design, development, supply chain, and manufacturing process. If the parts do not fit when the manufacturer attempts to put them together, the system has a defect that must be tracked down and eliminated. Thus, auto companies focus a great deal of attention on understanding and improving the manufacturing process. Across the world auto industry, the differences in regional averages in quality, productivity, and diversity are declining. Within regions, however, the variance in performance is high, with large gaps between the best and worst plants. Quality performance trends are similar to those for productivity. Much of the quality gap between Japanese companies and their American and European competitors has been closed. However, the variation among plants in each regional group is large. The greatest improvement is shown by European plants and by Ford plants in North America. While this improvement closed much of the quality gap with Japanese competitors, Japanese plants improved in Japan and in North America. The North American transplants have eliminated any gap in quality performance with their sister plants in Japan. As far as talking about the flexibility in manufacturing, the strategic advantages (the ability to assemble multiple product lines in a single plant) have been widely discussed over the past 3 decade. Companies that are able to produce a variety of products in their manufacturing plants have a number of advantages. Such plants are an important resource for a company with a product development strategy of high variety. In addition, flexibility enables plants to respond more effectively to changes in their competitive environment. The manufacturing plants with the highest levels of product variety have typically been those that produce many different models for export- Japanese plants in Japan and European plants. Ford plants in North America have typically been dedicated to one or a few models. The Japanese transplants started their operations in North America with low product variety while they established their production system philosophy and have slowly increased variety over time. The Japanese and U. S. utomotive industries operate differently. Japanese manufacturers typically ask suppliers regardless of location or national origin-to assume more responsibility for engineering design. In many cases, the Japanese automakers do not own patent rights to the designs for the parts they use, so that the parts suppliers must be quite specific. By contrast, American automakers usually provide detaile d designs and ask suppliers to bid on a part. We come here to the most important point in our project; the supply chain policies. The world’s automotive manufacturing sector consists primarily of about 20 very large multinational corporations. The automotive supply sector, however, comprises thousands of firms ranging in size from a few employees to more than 100,000. Drawing conclusions about such a large and diverse sector is much more difficult than for the manufacturing sector. Best practice in automotive supply chain management involves close, trusting relationships with long-standing suppliers that are intimately involved with the development and production of the components and subsystems they provide. In the past five years, Chrysler has aggressively incorporated those findings into its modus operandi, GM has largely rejected that hilosophy, and Ford has settled somewhere in between. On the surface, the advice to improve partnerships along the supply chain, drawn largely from Japanese practices, seems to have significantly helped Ford on its return to growth and profitability. At the same time, Honda insists on exerting extreme price pressure on its suppliers and aggressively negotiating division of the returns to innovations in supplied parts and subsystems. Automotive distribution and retailing were once given little attention because they were viewed as adjunct to the core business of engineering and manufacturing vehicles. However, in the past several decades, the pressures on the industry to make its factories and product development processes more efficient have spilled over into the distribution and retailing (post manufacturing) sectors- cutting profit margins and causing significant restructuring in the 4 distribution and retail industry base. This restructuring, although quite significant, has attracted much less attention than the manufacturing sector’s changes because it involves no dramatic dislocation of people, jobs, or economic base. These downstream segments of the supply chain are experiencing a shift from being capital intensive (focused on inventory investment) and people intensive (sales forces) to being more information intensive (having the right vehicle in the right place at the right time). Due to greater flexibility of labor and capital in the post manufacturing markets, this conversion from physical logistics to information logistics is shifting the power and leverage in the supply chain toward economic agents that are highly entrepreneurial and flexible. These economic forces have reduced the number of dealers in the United States (now approximately 22,000) and are expected to continue doing so. More important than the absolute dealer count is the trend toward segmentation of the many industries that make up distribution. Unlike the small group of relatively tightly organized supply chains, the post manufacturing sector is a much looser collection of organizations that are not so centrally focused around the automaker. The combination of high national productivity and the relative decrease in value of the dollar against the yen and the deutsche mark has made the United States a more attractive manufacturing site for foreign automakers. This development has provided a new source of investment, jobs, and training for Americans. Moreover, the transplant assemblers are significantly influencing the U. S. automotive supply base, both by encouraging traditional Japanese and German suppliers to set up transplant operations and by inciting the traditional U. S. suppliers to become more competitive. These improvements to the supply base, driven in part by the Japanese transplants, in turn benefit the American automobile manufacturing companies. The Japanese-transplant assemblers in North America have continued to expand their production and are now approaching a volume of three million cars and light trucks per year. The transplants represent an enormous positive economic impact for the United States, compared with having that many vehicles imported from Japan, for example. These investments have helped the Japanese companies as well, which would be in far deeper trouble had they not diversified their manufacturing base outside the high-priced labor and parts markets in Japan. The displacement of the automobile manufacturing industries employment and production with transplant production is more difficult to assess. In the main, it has decreased the financial and market dominance of the American auto industry, although none are currently threatened with survival concerns. It has also affected the geography of automotive employment within the United States. The combination of high national productivity and the relative decrease in value of the dollar against the yen and the deutsche mark has made the United States a more attractive 5 manufacturing site for foreign automakers. This development has provided a new source of investment, jobs, and training for Americans. Moreover, the transplant assemblers are significantly influencing the U. S. automotive supply base, both by encouraging traditional Japanese and German suppliers to set up transplant operations and by inciting the traditional U. S. suppliers to become more competitive. Japanese companies have constructed manufacturing facilities in many industries in the United States, including the automobile and electronics industries in recent years. However, it is the automobile parts industry that is currently perceived as being under siege. Nearly 50 Japanese automotive parts suppliers have constructed facilities here since 1979, most of them clustered around new Japanese automobile assembly plants in California, Tennessee, Michigan, Ohio, and Illinois. Hundreds more suppliers are reportedly planning American plants in the next few years and local governments throughout the United States are competing vigorously for them. Local government officials view the Japanese plants as a major source of investment, employment, and tax revenues for their communities. However, despite the warm welcome given the Japanese parts manufacturers by local communitiesand especially by the unemployed in those communitiesthey are resented by some of their American competitors. A subgroup of American auto parts manufacturers feels it is being discriminated against by U. S. -based Japanese automakers that prefer to purchase some of their parts from Japanese suppliers. In short, the industry subgroup feels it is being discriminated against because it is American, not because it cannot produce auto parts as well as Japanese companies can. In America, Honda introduced just-in-time parts delivery and rolling-model changes, which allows production of the old model right up until production of the new model begins. This approach continues to put customers first. The truth is that the customers will not just drive Hondas – they will drive Honda with their expectations. Another Honda difference is their flexibility. Honda plants have always been able to build more than one model on the same line. Recently Honda implemented an even more flexible manufacturing system that increases the speed and efficiency when introducing new models. Honda’s New Manufacturing System does this by standardizing production capabilities among its plants worldwide. This makes the shift within a plant to new model production less complex and more cost efficient.