SZABIST UNIVERSITY

STRATEGIC PROCUREMENT
Submitted To : Haris Malik

Group Members:

1. Maria Naz (1658112).

 Table of Contents

1. Introduction 2-2
2. Current Procurement Practices at Honda 2-3
3. Procurement Process at Honda 4-5
4. Supplier Assessment & Selection Process at Honda 6-7
5. Purchase Order System at Honda 7-7
6. Production planning at Honda
7. Inventory management at Honda
8. Logistics and control at Honda

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 HONDA PAKISTAN – INTRODUCTION:

Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited
Japan, and the Atlas Group of Companies, Pakistan. It came into existence in November, 1992
while the joint venture agreement was signed in August 1993, with 51% of the share held by
Honda Motors, 29% by Atlas Group and rest in the market. The first car came out of the
assembly line on May 26, 1994. President of Pakistan, Sardar Farooq Ahmad Khan Leghari and
Mr. Kawamoto, President of Honda Motor Company Limited Japan officially inaugurated the
occasion. The company is listed in Karachi, Lahore and Islamabad Stock Exchanges.

Honda Motors has a registered office at Macleod road Lahore along with two other offices at
Karachi and Islamabad. Total production per day is 220 vehicles, and the factory is in Lahore.
Some of the vendors are in Karachi and some in Lahore. President is Hironobo Yushima, Vice
president is Mr. Matsuo, and chairman is Mr. Yousuf Sherazi, Chief Eng. Quality is Mr.
Hayakawa while Vice President Admin and HR is Maqsood Rehmani. There are 23 3S (Sales,
service and Spare parts) dealers.

The company is committed to maximize value creation. This is being achieved by employing
business resources to improve operating agility, optimizing cost structure, execution of growth
projects and investment in new technology. Consequently, the company showed a net sale of
worth Rs. 56.51Billion in 2017, representing an increase of 20% as compare to the last year.

 CURRENT PROCUREMENT PRACTICES AT HONDA:

 Supply chain of Honda:

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 Procurement Belief of Honda is:

“We sustain the procurement of good products at reasonable prices and in a timely manner”.

 Procurement process at Honda is based on 3 principles:

1. Fair and open Trade
2. Equal Partnership
3. Respect for suppliers

 Development in Procurement process at Honda. Fig 1

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 (Source: https://world.honda.com/sustainability/report/pdf/2015/Honda-SR-2015-en-087.pdf)

 PROCUREMENT PROCESS AT HONDA:

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 Forecasting

Determining the Quantity

of Raw Material

Defining BOM

Pro Forma Invoice is called

PO is placed

LC is established

Revival & Recovery of

original documents

Clearing agent is involved

Delivery and possession

Quality Inspection

Payment to Vendor is made

Revival & Recovery of original documents

 ELABORATION OF THE PROCUREMENT PROCESS :

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  Every order is made on the basis of strong forecast for the 3 variants of Honda
manufactured in Pakistan, driven from the market on yearly, quarterly and monthly
basis.
 Requirement is received by the Production and Planning department from the
forecasting department.
 MRP is run by P&P department to determine the total quantity of raw material.
 Bill of Material (BOM) is defined by the system
 After calling the pro forma invoice, purchase order is placed on quota basis.
 Then Letter of credit is established and revival and recovery of original documents takes
place, including Bill of Lading, Letter of credit and Invoice.
 Clearing agent is being involved and delivery and possession of material is made.
 Quality check is performed and finally the payment is made to the vendor.

Direct Material Purchases:

 Head lamp.
 Sheet metal.
 Engine head.
 Seat.
 Paint.
 Tires.
 Rim.
 Locks.
 Mirrors.
 Nuts and bolts.
 Bumper.
 Doors handle.
 Radiator.
 Glass.
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Indirect Material Purchases:

 Glue
 Gloves.
 Tools.
 Stationary for operations.
 Paper.
 Jigs.
 Sanding paper polisher.

 SUPPLIER ASSESSMENT AND SELECTION PROCESS AT HONDA:

Vendor selection and assessment is made mainly on the basis of following grounds:

COST

QUALITY

RELIABILITY

DELIVERY

 Some of the performance metrics along with above mentioned criteria also involve:

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 1. Perfect order fulfillment to delivery.
2. Delivery Performance to request date.
3. Order management cost.
4. Materials acquisition cost.

 Selection of existing vendors for new parts:

1. Handover the material to vendors.
2. Receiving the developed parts.
3. Quality inspection.
4. Visit and inspection of vendor’s plant.
5. Determining vendor’s capability.
6. Negotiation process.
7. Finally issuing the PO.

Vendor selection and approval process at Honda Motors Pakistan is based on the standards
based not only on their capability to provide quality parts at viable terms but also their
observance to sustainability principles. Input is gained from Supply Chain, Logistics, Production,
Commercial and Finance departments for sourcing decisions. Honda Motors seeks to identify
and comes in working terms with companies having standards that are consistent with its own
procurement and production practices. The company also guarantees that it’s ‘Vendor Policy’
and ‘Vendor CSR Guidelines’ are accredited and signed by all of its vendors. Honda Motors has
also established Business-to-Business link which allows the supply chain department and
vendors to communicate without postponements and helps the company to achieve:

 Real Time Communication.

 Paper less Environment.
 On-Time Receiving & delivery
 Improvement in efficiency and effectiveness of Supply Chain.

(Source: https://www.atlashonda.com.pk/vendor/)

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 PURCHASE ORDER SYSTEM AT HONDA- USING SAP:

Purchase order system at Honda controls and track all expenditures of the company from the
time of initial order placement through the receipt of those orders and accounts payable entry,
in all the steps shown below.

Done on the basis of 6 months forecasting, for 3 variants (City, Civic and BRV)

Back order after customer’s request, RFP (Request for Proposal)

CKD-Complete Knock Down order on the basis of forecast

PO-Purchase order is sent to Honda Thailand and Honda Japan

Works on the principles of JIT- Just -in- Time

As soon as supply arrives, DC and invoice come

Then invoice gets cleared from the account

PRODUCTION PLANNING AT HONDA

Production planning deals with the management of production of right product at the right
time, and right quantity and with acquisition of raw material and required resources to produce
those products. Usually production planning is done managing the right information. For this

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purpose, the production department needs to have a strong coordination and communication
with four major sections: Logistics, Maintenance, DDC/Stores and local Production Planning and
control department.

Production planning at Honda is mainly done on 7 principles:

 Reduced set-up time

 Small lot production
 Employee involvement and empowerment
 Quality at source
 Equipment maintenance
 Pull production
 Supplier involvement

Lean Production planning at Honda is done by reconciling the actual production with sales
forecast, developing and revising plans based on sales forecast, matching monthly production
plans, evolving a sales mix founded on planned production information and finally generating a
production sequence and schedule. In the production planning process, a number of factors
impacts the final planning. Customer orders (forecasts), present inventory levels and existing
production capacity are the key forces in production scheduling. Therefore, these are the inputs
for the master production scheduling. Presently, the production planning is completely
executed manually by the production planning department.

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The Master Production Planning schedule is based on the quantity of the finished good
inventory at the end of a planning period; that is one week. The inventory at the end of a week
is currently supposed to be between 1.6 and 3.2 days of safety lead time, founded on the
average forecasted demand of the upcoming 4 weeks. The main outputs of the MPS are the
weekly production quantities, the quantity of workers required per week, and the end-
inventory of finished goods for each week during the planning period. These weekly numbers
are then allocated over the production days in each week, such that the MRP planners can
schedule parts ordering. Moreover, production also uses the MPS as a suggestion of what to
produce in the future.

JUST IN TIME AND KAIZEN

Honda’s main focus is on maintaining the production efficiency by minimizing the cost and
maximizing the storage and any other wastes. Parts availability is made on “Just in Time” basis,
that is the right inventory at the right time and right quantity. In addition to that Honda has the
best supplier based program as compare to other Japanese automotive companies by
developing great suppliers rather than exploiting only the existing ones. Kaizen- continuous
improvement is the ultimate task to be followed at the production system of Honda. Honda did
not only bring improvements in the production systems but also in the overall quality of
products, services and its employees. On the basis of these, Honda claims to be the number 1
company in creating value for the customers.

HONDA PRODUCTION SYSTEM GLOBALLY

As the demand of motorcycle in global market is growing, Honda needs to response to the
evolution by strengthening the Honda Production System in Japan. Subsequently, Honda has
established the new factory site in Hamamatsu, Kumamoto for consolidated vehicle
productions with the aim of establishing a very efficient production system casing all the
processes at once. Honda is trying to strengthen the automatic transmissions production

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system (AT) in Hamamatsu factory because the demand of transmission gears is progressing.
This factory will also transmit the cutting-edge production technology to the Honda site across
the world.

Honda is concentrating on “the global flexible production system” with the expansion in growth
in regions in Asia and South America, they have to increase the competences to respond the
supple changes that are occurring in the business environment. This production system can
adaptably respond to the demand with diversity in their range of models. Recently, Honda has
launched its production plants not only in North America and Canada but also in the Asian
regions like Thailand. Furthermore, Honda has also reconditioned the new technologies and
production system while maintaining the standards of its business.

Although, Honda is producing high quality products for the customers with innovative styles, it
is also concerned about the environment and safety issues and consequently is managing
different campaigns for these purposes by doing team work and keeping up a healthy work
environment. Every year, Honda organizes the activities related to education, traffic safety,
environment, and community initiatives around the world.

INVENTORY MANAGEMENT AT HONDA

Inventory management at Honda is done with the following objectives under consideration:

 To guarantee continues supply of inventories to the production.

 To keep cost of production at low level.
 To elude over storage and underneath stocking.

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  To eradicate replication in ordering or replacing stocks.
 To maintain and control material cost
 To reduce losses through corrosion, pilferage, wastage and damages.
 Designing structures for good inventory management.
 Perpetual inventory control of materials.
 To enable data for short and long term planning and control of inventory

Inventory at Honda is of 3 types; work-in-progress, raw material and finished goods. Inventory
comes in different parts required in making cars both from local and international vendors.
They arrive at the receiving dock, moves to the PC store and finally moves to the production
plant. From plant the finished products in forms of cars are transported to the dealers.

The well-known Japanese practices for inventory management are being followed by the
company worldwide. Honda is working on the principles of Just in time, which is the philosophy
of manufacturing with only the right amount of inventory, increasing efficiency and reducing
waste and thereby reducing the overall inventory cost. Furthermore, lean manufacturing is
being used for reducing the wastage and lessening the lead time with no inventory between the
processes. So Honda actually replenishes the material buffers just when they are required and
not before or after that. It is focusing on what the customer needs, when is it needed and in
what quantity is it needed. So this is made sure using minimal resources in terms of man power,
machinery and material.

The elements of Just in time are:

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  Takt time
 Flow production
 Pull system

Takt Time

It is the average time between the beginning of the production of two units and acts as the rate
of customer demand. On the basis of this, flow within the work cells is created and also in the
whole value chain from raw material to delivery to customers. Its calculating by dividing
available production time by customer demand.

Flow time

It is also known as mass production, in which single piece flow is there and one item moves at a
time on the assembly line with consistent batches, each step creating what is needed only.

Pull system

In pull system, raw material is brought to the work station only when it is needed and as it is
needed.

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 LOGISTICS AND CONTROL

Inbound logistics is there in form of parts coming from local and international vendors and then
their stay at receiving dock, transfer to PC Store and then to the manufacturing plant. While
outbound logistics is there in form of finished product, cars, being transported to the dealers. A
number of parts that are used in production at Honda, are sourced from suppliers and
transported to its plants. These parts, then, are integrated with the Company’s products, and
then the finalized models are sent directly from the plants to dealers. Furthermore, parts are
also transported between plants, and parts needed for services and repairs are directed
towards dealers. Now because of this huge volume of transportation that happens throughout
the manufacturing process at Honda, reducing inefficiencies, increasing environmental
concerns, compliance and risk management in logistics are becoming important issues. Honda
surpasses conventional divisional and regional boundaries to guarantee the integrated control
of logistics and is shepherding management from an environmental, social and governance
(ESG) standpoint.

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Achieved CO2 Reduction by Increasing the Ratio of Longer Carriers

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Honda is trying to reduce Co2 emissions from its transportation activities worldwide.

In India, Honda has achieved around a 6,226t decrease in CO2 emissions in a year by refining
transport efficacy of finished vehicles from its factory to dealers.

Honda India has executed this initiative in collaboration with logistics service providers and
dealers in which longer carriers transport two or more dealers’ amalgamated orders on the
same route, if one dealer order is less than six cars. Until that time, Honda India was using small
carriers with four car capacity for small quantity dealer orders.

Just as CO2 emissions reduction, decreasing waste from packaging materials is another
environmental challenge in the logistics area. So Honda is functioning on reducing waste from
packaging materials by streamlining packaging, reconsidering the materials used and changing
specifications. For instance, disposable transport packaging that utilizes cardboard boxes while
steel cases are being switched over to eco-friendly plastic containers.

Honda has also decided to make efforts toward expanding its modal shift that involves
swapping means of transportation from trucks to ship and rail transportation, focusing mainly
on transportation to distant regions.

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 References

https://global.honda/about/sustainability/performance/supply-chain.html

https://www.youtube.com/watch?v=wDadhQoVsRU

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