Introduction
About Honda
Purchasing Policy
International Purchasing Operation
Purchasing Process
Supplier Participation in Development
Export in a Worldwide Network
Conclusion
Potential Supplier Contacts at Honda
Procurement Diversity

Introduction

From its earliest days, Honda Motor Company has maintained a specific company principle:

Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality yet at a reasonable price for worldwide customer satisfaction.

Honda is striving constantly for new and better technology. In its efforts to meet the changing needs of an evolving world community, Honda needs the support of dedicated suppliers with similar goals and demanding standards.

This web page will introduce you to the Honda purchasing philosophy applied by its worldwide operations as well as the importance of the relationships between Honda and our valued suppliers.

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About Honda

Honda Motor Co. Ltd. was established in 1948 as a motorcycle manufacturer in Hamamatsu, Japan. From this beginning, Honda has grown to become the world's largest motorcycle producer, a title it has maintained continually since 1964.

Honda first entered the automobile market in 1963 and currently has become one of the world's leading manufacturers. Honda also produces a variety of power products, including such items as lawn mowers, tillers, outboard motors and generators.

These three product groups - automobiles, motorcycles, and power products - remain the pillars of Honda's business structure today.

Globalization

Honda is unique in its approach to worldwide production and also in its company structure.

One feature of this unique approach is an attitude of globalization. From the first words of the company principle, there is an emphasis on an international viewpoint.

Only ten years after the creation of the company, the first overseas subsidiary - American Honda Motor Co., Inc. - was established. Three years later, the first overseas production began in Belgium with the manufacturing of mopeds for the European market. This global reach has grown to include more than 65 plants in 34 countries (as of October, 2001).

With its attention focused on the world market, Honda has followed a philosophy of producing in the markets where there is a demand for our products. Honda endeavors to immerse itself into the local environment in an effort to become part of the community and culture. This includes the use of all local resources, including labor.

With this attitude comes increasingly self-sustaining local production facilities worldwide. This concept has been fundamental to overseas production and will continue in Honda's ever developing worldwide network.

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Purchasing Policy

Because of the established international nature of the purchasing function, Honda is committed to maintain free trade, treating all suppliers equally regardless of size, location, or national origin.

From this international environment, Honda has developed and maintains a basic purchasing policy that can be described using the following principle:

Honda will buy from the most competitive suppliers in order to fulfill customer satisfaction.

Customer Satisfaction

This principle is based on the idea that Honda's suppliers are not simply selling their parts to us, they are selling their parts to our customers through us. We expect each supplier to develop the same commitment and dedication to customer satisfaction as we have. To accomplish customer satisfaction, what Honda requires of suppliers is competitiveness in what we call Q.C.D.D.M.

1. Quality

Quality is the most important factor in ensuring customer satisfaction. We believe quality must be built into the product during the production process. Quality cannot be assured in the final inspection process. It is the responsibility of each supplier and each individual worker to ensure quality. A commitment by the supplier at every level from the top management to the individual worker is essential to continually improve quality.

2. Cost

Competition in the parts supply industry has become very strong in recent years. Honda is determined to provide products at competitive prices and value for the money. Suppliers are expected to achieve target cost through their ideas, technologies, improved productivity, plus joint efforts with Honda in VE/VA (Value Engineering/Value Analysis) activities. We require suppliers' continuous efforts to reduce cost year by year.

3. Delivery

Honda employs the just-in-time production system.

In order to respond quickly to our customer's needs, it is becoming more and more critical to produce products with the shortest possible lead-time.

Suppliers are expected to have a reliable and flexible production system, which can respond in a relatively short leadtime, and can be synchronized with our assembly lines.

Suppliers will also benefit from just-in-time production system.

Just-in-time production reduces inventories, eliminates waste, and also improves production efficiency.

Adopting just-in-time lean production will raise supplier's competitiveness in cost and quality.

4. Development

In responding to ever-changing customer demands, and to provide high quality yet cost competitive products, Honda relies heavily on established suppliers as a source for development and improvement of technology.

In the course of development, emphasis will be put on uniqueness. We believe uniqueness in design or specification is a part of competitiveness. It is this uniqueness that makes up the identify of our products.

Suppliers are expected to have ability to realize such demand of uniqueness through their technology and know-how in development in a timely manner with high cost performance.

5. Management

It is important for a supplier's management team to be strongly customer-oriented and to provide effective leadership for the entire company that expects to fulfill Q.C.D.D.

Such management effort promotes mutual trust between the supplier and Honda.

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International Purchasing Operation

To facilitate ease in purchasing on a global basis, Honda has created a unique international organization.

This organization consists of establishing local purchasing offices in locations which meet the requirements of local manufacturing. Each office is staffed with trained purchasing professionals who have the authority and responsibility for purchasing their own parts and materials.

At the bottom of this web page is a list of Honda's major international purchasing offices. Suppliers are encouraged to contact these offices where close relationships can be developed, resulting in improved communication and understanding.

As local purchasing operations continue to develop, local research and development offices are established. 

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Purchasing Process

There are several steps that must be taken when initiating a relationship with Honda. Following these steps can make the purchasing process smoother for everyone. 

1. Initial Contact

Initial contact in the purchasing process may take place in two ways. First, according to an established purchasing schedule, Honda may contact suppliers in various areas to explore the potential of purchase.

The second way is direct contact by a supplier to Honda. In this manner, Honda encourages suppliers to directly contact the local purchasing office of the production site nearest the supplier's own location.

If there is an initial interest in the product, a meeting will be arranged between the supplier and a Honda purchasing representative. This initial meeting will be arranged between the supplier and a Honda purchasing representative. This initial meeting is of crucial importance to the future relationship. This meeting should include a written overview of the supplier's operations (present products and customers, etc.) and experience as a parts manufacturer. The sample parts and visual aids such as videos or slides can be helpful. A confidentiality agreement will be signed by both parties before the initial meeting.

2. Preparation Investigation of Honda Parts (Homework)

Although it is of general interest to know what parts you presently manufacture, Honda is much more interested in knowing,

• exactly what parts you would propose to supply to Honda

• what tentative price you will ask for that part.

Also, Honda wants to know,

• to what extent you have studied Honda parts before making the presentation.

A thorough investigation of the part to be supplied should result in knowledge about size, weight and how the parts affect surrounding or attached parts. With this study and effort, beneficial discussions will transpire.

The parts that we are most inclined to purchase first will be those parts that have world class competitiveness. The study of the part at this point does not require a detailed review of specifications for the part. Your own engineers can look at the part or parts and make their own assessment. Your initial efforts in this regard will be the most effective way to begin a business relationship.

Also important to us is information of suppliers' development leadtime to help us quickly understand a part of the suppliers' development capability.

3. Quotations

After evaluating the presentation and based on the tentative target price information, Honda may issue a drawing and the accompanying specifications for the part and request a more specific quotation. This quotation should include first and foremost the quote as per the agreed specification. It may also contain the supplier's own design quote and possible adaptations of their own design to Honda's specifications. Differences in these quotes should be clearly defined.

4. Initial Plant Visit

If the initial quote is found to be competitive. Honda will arrange a visit to the company and its operations. This initial plant visit will be made by a combination of purchasing, quality control, and R&D personnel. The purpose of the visit is not only to inspect manufacturing processes and quality assurance activities, but also to determine management policies and philosophies and general conditions.

5. Prototype Development

Following a favorable visit to the supplier, Honda will ask the company to provide prototype sample parts. Along with the samples, we will ask the supplier to provide its own testing and evaluation of the samples. The resulting data, samples, plus an outline of the production capabilities and schedules, should also be submitted.

The lead time for this development work will probably be shorter than what many suppliers are accustomed to or expect. This is because of Honda's policy of very rapid model changes and accelerated development schedules in response to market changes. Several sample parts should be prepared. This will shorten the response time if modifications of the part are required. A quick response to such requests is very important. Both parties will need to cooperate and communicate.

6. Testing and Evaluation

Honda will require extensive testing of parts. Results will combine the suppliers' own test data with that of Honda R&D divisions. Honda's local capacity for testing and evaluation is developing quickly in conjunction with manufacturing capacity. The testing process will include many discussions between our technical staff and the supplier's technical staff.

7. Mass Production Quotation

If the results of evaluations and testing are positive, we will move to mass production price negotiations. Pricing is a very critical item and is discussed continuously from the initial meeting. At Honda it is required for suppliers to provide a detailed breakdown of the price. This breakdown will include raw materials, labor, tooling, required packaging, and delivery expenses, administrative expenses, and other expenses.

We find the breakdown of costs is helpful in suggesting ways that suppliers can seek to improve and thereby reduce costs.

8. Preparation for Mass Production

Honda will issue tooling orders after the successful completion of final prototype evaluations.

9. Trial Run

To confirm that the part will continue to meet requirements in volume production, the supplier carries out trial runs under mass production conditions.

10. QAV

Once trial runs are successfully done and mass production schedules are determined, there will be a QAV (Quality Assurance Visit) for an overall evaluation of the process.

11. Agreement

"General Agreement for Purchase of Parts" and "General Agreement for Quality Assurance" and any other applicable agreements will be mutually signed.

12. Purchase Order

After all the necessary procedures are completed, orders are placed and mass production can begin.

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Supplier Participation in Development

Design-In

As Honda is heavily dependent on the outsourcing of parts, design-in activities are crucial to successful development and production. 

Design-in is a process in which engineers from suppliers work together with our engineers in the early stage of the vehicle development, in order to better utilize the suppliers' expertise which will help us to develop the best design in the shortest timeframe.

In prototype development, suppliers are expected to follow the development cycle, identified below, until a mutual agreement between both parties is reached on the best design. Of course the time requirement of each development event must be strictly met.

Thus we can identify any potential problems and take necessary countermeasures long before reaching the production stage.

To participate in the Design-in program, both of the following conditions must be met.

1. Parts

An example of parts that we consider suitable for this program is a part in which the suppliers' technology/know-how can best be utilized in the earliest stages of development.

2. Suppliers

Suppliers we choose to work together with in this program are those evaluated and selected in the light of the criteria of competitiveness, "Q.C.D.D.M." described above.

GUEST ENGINEERS

Design-in suppliers developing parts which have a high inter-relationship in fit or function with other parts may be asked to participate as a guest engineer. Suppliers' engineers actually work at Honda R&D facilities hand-in-hand with Honda engineers from the very early stage of development. The Guest Engineer program helps Honda's local procurement efforts and spurs the development of new technologies by both suppliers and Honda.

Export in a Worldwide Network

Honda always seeks competitive parts not only from domestic suppliers but also from overseas. Therefore, parts being used in one area of production with strong competitiveness can be good candidates for use in other manufacturing locations.

For suppliers who want to export, we would encourage that the first step be to become a supplier of Honda locally through direct contact with our local purchasing office. The supplier should be most competitive at that location, since it is free to export or long distance transportation expenses. This approach will bring the supplier the best results.

In determining the cost competitiveness of parts for export to any of Honda's operations worldwide, the price must be assessed on the landed cost basis. Landed cost includes the cost to manufacture the parts plus your sales and administrative costs, plus freight costs, overseas packaging costs, overseas freight costs and duties, if applicable, and any related expenses. All of the above costs are considered landed costs.

Obviously, bulky parts may have a cost disadvantage when you consider ocean or air freight transportation costs. We expect suppliers wishing to export their products to consider all these costs in determining their price quotation.

In exporting to overseas locations, cost is inevitably accompanied by currency exchange. Drastic changes in the currency balance may create opportunities for suppliers in some countries to become very competitive in the export of their products. While this is a distinct advantage, it must be stressed that companies should not rely only on exchange rates as a means of becoming competitive.

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Conclusion

As the relationships between Honda and its suppliers continue, there will be many opportunities for growth and expansion within the Honda network.

Through Honda's commitment to purchase when we manufacture and sell our products, many suppliers who demonstrate world competitiveness may be extended the option to export their parts to Honda operations worldwide.

We encourage suppliers who understand the Honda Way and who are willing to improve their competitiveness to contact one of Honda's purchasing offices and to take the first step toward a partnership with Honda.

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Potential Supplier Contacts at Honda

Listed below are contacts and addresses for the following: