Case Study: HONDA - Procurement vs.

Purchasing
Background:
HONDA is a multinational manufacturing company specializing in automotive
components. With operations spanning across multiple countries, the company
places a significant emphasis on its procurement and purchasing functions to
ensure seamless supply chain operations.
Scenario:
The company identified a need for a critical component used in their flagship
product line. This component was vital for maintaining product quality and meeting
customer demand.
Approach:
Purchasing Department:
1. Purchasing Phase:
• The purchasing team was tasked with obtaining the required quantity
of the critical component at the best possible price.
• They conducted a thorough market analysis to identify potential
suppliers, focusing on those offering competitive pricing.
2. Transaction-Oriented Activities:
• The purchasing team issued purchase orders to the selected supplier,
specifying the quantity, price, and delivery schedule.
• Upon receipt of the component, they inspected it for compliance with
specifications and quality standards.
3. Cost Efficiency:
• The primary objective of the purchasing team was to secure the
component at a price that aligned with the budget constraints without
compromising quality.

Procurement Department:
1. Strategic Planning:
• The procurement team engaged in strategic planning discussions with
various stakeholders, including production, quality control, and
engineering departments.
• They assessed long-term implications, considering factors like supplier
reliability, technological advancements, and potential future demand
fluctuations.
 2. Supplier Evaluation:
• Procurement identified potential suppliers based on a comprehensive
evaluation process. This included considerations like supplier
reputation, past performance, and capacity to meet future demands.
3. Request for Proposal (RFP):
• To gather comprehensive proposals, an RFP was prepared and sent to
the shortlisted suppliers. The RFP outlined technical specifications,
quality requirements, and service level expectations.
4. Contract Negotiation and Award:
• The procurement team engaged in extensive negotiations with the
selected supplier, focusing on long-term agreements, quality
assurances, and continuous improvement initiatives.
• Once mutually acceptable terms were reached, a formal contract was
awarded to the supplier.
Outcome:
• Purchasing Department:
• Successfully acquired the critical component at a competitive price
within the budget constraints.
• Ensured timely delivery and compliance with quality standards.
• Procurement Department:
• Established a strategic partnership with the selected supplier, focusing
on long-term collaboration and continuous improvement initiatives.
• Mitigated risks associated with potential supply chain disruptions
through strategic supplier selection and contractual agreements.
Conclusion:
The case of HONDA demonstrates the crucial distinction between purchasing and
procurement. While purchasing focused on transactional activities to efficiently
acquire the critical component, procurement took a strategic approach,
emphasizing long-term supplier relationships and risk mitigation. This case study
highlights how procurement and purchasing functions play distinct but
complementary roles in the supply chain management process. It underscores the
importance of strategic planning and supplier relationship management in
procurement compared to the transactional focus of purchasing.
Thinking Process
1. Describe the key activities undertaken by the Purchasing Department in the
case study and explain how these activities align with the primary objectives
of purchasing.
2. Explain the strategic planning process undertaken by the Procurement
Department and how it contributes to long-term supply chain resilience and
supplier relationship management.
3. Compare and contrast the roles of the Purchasing and Procurement
departments in the context of the case study. How do their strategies and
objectives differ, and what unique value does each bring to the company?
4. Discuss the importance of supplier evaluation in procurement as
demonstrated in the case study. How does this process help in mitigating
risks associated with potential supply chain disruptions?
5. Reflect on the outcome of the case study for both the Purchasing and
Procurement Departments. How do their outcomes demonstrate the
importance of having distinct but complementary roles in supply chain
management?