If you only get excited by the sausage of a car and not by the sausage making of a car factory, hop on to the next article, because this will utterly bore you. Everybody gone? Alright, talking to myself again. We’ve always said, not really in jest, that two industries profit the most from just in time manufacturing: The real estate industry and the trucking industry. Honda wants some of that money.
Just in time made real estate prices around car factories soar. This is where suppliers build warehouses where they pile up parts for timely delivery across the road. Whether the parts come from far away or down the road, they must be trucked. Sometimes in very inefficient partial loads of parts. Each day at a car factory is a mad zoo of hundreds of trucks. Whatever savings there are in just in time, this is where they go to waste.
Honda decided to do something about it. Saving costs of manufacture is high on the agenda of Japanese automakers, and Honda found a simple way to drive down cost: They’ll drive down to the suppliers themselves and pick up the parts. Why would that be more efficient?
Under what they call the milk-run method, one truck goes on a planned route and picks up parts from multiple suppliers. One truck instead of 7 or 10. A full load. Only one truck back at the dock at the factory. Honda estimates to cut transportation costs by 10 to 20 percent using that system. According to The Nikkei [sub], Honda will to a milk-run dry-run in May with seven suppliers. Beginning in 2013, it will be all milk-runs.
Honda has a lot riding on those milk trucks. Honda brings in around 70 percent of its parts from the outside, a rather shallow in-house manufacturing depth. The shrinking Japanese market and the high yen makes Honda look for ways to cut the fat so that domestic production of 1 million units still makes sense.
Having worked in manufacturing for many moons, I don’t see this as being a very useful idea, as there is the TIME element in play. Think of how long you can spend running errands for an item here, an item there, even assuming no traffic, you have a list and know exactly what you need, and you can quickly find it at the stores. One can burn up a good part of the day doing this. And once the truck is back to the plant, everything has to be sorted out and sent to the right place inside the plant (think of those crates of completely mixed up product that some stores get to restock their shelves, like the auto parts stores in my area).
At one of my former employers, we actually had the suppliers restocking parts INSIDE our plant at point-of-use right on the assembly line, so it required zero company resources to maintain stock on those items. You can’t beat that! Supplier sent bill in to accounting every month (so there was the trust issue there, periodic audits help).
I know that in South America, some auto plants have their suppliers nearby, delivering just-in-time completed dash subassemblies, seats, and interior component systems, in perfect sequence with the scheduled line build for that day.
Who knows, based upon what I know about Japanese manufacturing methods (we had Toyota consultants at my workplace for almost a year teaching us their methods), they have thought this through pretty well – time will tell. If it doesn’t work, they will certainly drop the idea sooner rather than later.
I don’t think the truck driver goes on a shopping tour. The suppliers will know what is required from them, and parts will wait in proper sequence in the proper containers on their docks. In a country where the door of your numbered train car stops exactly on the colored marker on the platform floor, you can rest assured that they have thought that through.
redmondjp, I think you are making out this process to be a lot less formal than it would be. For a move this big, you can safely bet Honda has every minute detail worked out, from loading process, route planning etc. Plus, they can milk this for environmental savings as well (reduction in use of transportation). Seems win win).
Also, is it a requirement with TTAC that every Honda article be negative, or at least have a negative headline?
Welcome to the Honda Logistics Group. Through its subsidiaries, as well as private transport and logistics companies, part of Honda’s supply chain already works that way. For the pickup of parts, as well as the return of reusable containers to the suppliers.
Most parts are actually delivered to HLG-owned facilities near the factories where they are sorted and delivered to the factories in sequence as needed (Related to assembly line locations and building sequence)
I find the whole logistic, ‘supply the factory thing’ fascinating; there seems to be many ways to crack an egg. Whether Honda picks up, or the supplier delivers, there is a cost, and it is billed to Honda as a line-item or by the part. The key to efficiency on any system seems to be a full, large truck unloading at the dock. The partial loads probably track back to mistakes or emergencies to keep the line running.
In this story, it seems that Honda doesn’t trust the supplier for on-time delivery, or for the lowest cost. Honda will do it themselves. (Suspicion, haughtiness, and cult-like behavior from Honda Inc., I’ve noticed over the years.)
As some point, your just-in-time factory really has a warehouse, just in the form of loaded trucks parked, swarming at the plant, or parked a block away. I’d like to see the comparison of costs between that, and a cheap building, attached to a factory, attached to a rail-line.
Anyone who has lived in the Detroit area for any amount of time will know that Chrysler has been doing this for years. You see Chrysler labeled semi-trucks throughout all the freeways daily, doing exavtly what you have described.
In fact, the just-in-time manufacturing concept originated with Chrysler. In the car industry, at least.
When I started work at Rover in 1978 we did precisely this. Everything old is new again.
Back in the ’80’s third place NBC ran brilliant ads for their summer re-run series using the theme “If you haven’t seen it before, it’s new to you!” actually capitalizing on their poor performance during the Fall/Winter season. Likewise, milk runs are hardly new to the auto industry. In the US, several of the big logistics carriers have milk run type operations in various regions where they consolidate small orders and build truckload shipments to the OEM plants.
Bottom line, I wouldn’t recommend short selling the contiguous real estate around a new assembly plant just yet.
I select door number two, Bob.
I don’t see what is new about all this. The Detroit-3 have been doing this even when they were still known as the Big-3.
Chrysler’s fleet had an airfoil, w/backlit Pentastar, on top of their IH tractor cabs (thanks to Mr. Warburton) and Ford’s Fleet was painted an interesting desert-sand color to reduce the need for washing (color showed neither the dark, nor light elements of dirt and contrasted nicely against the blue oval logo). GM’s fleet never seemed uniform until they outsourced much of it to Penske.
I suppose some element of the supplier-park concept also comes from trying to reduce/capture the costs/profits of real-estate transactions vav the supplier facility by buying the land cheaply in advance and selling/re-leasing it to the supplier (mostly this is done to get the major benefits of JIT/ILVS delivery and reduced mittlebindung/funds-tied-up in stock and transit).
yah, this was brought up when I toured BMWs Spartanburg facility. That the Japaneses can do it doesnt surprise me at all.
The manufacturing company I presently work for is pretty small both in size and volume and has almost everything save very large components arrive LTL. Freight costs are a killer.
The last manufacturer I worked for had rather high output, but I doubt it would exceed that of an average single auto assembly plant. It wasn’t enough that suppliers set up plants/warehouses nearby, but the company did consume almost the entirety of a large warehouse across town from the plant. All of the various supplier owned&managed inventory went to this one warehouse as did some of the company’s overflow inventory. The warehouse had its own trucking service that kept a couple trucks circulating between the warehouse and plant delivering exactly what the plant needed from among the various suppliers’ inventory that was stored there. The manufacturer was able to keep their inventory turns just north of 15 (entire in-plant inventory changed-over on average 15+ times per year) and climbing despite assembling over 60 distinct models of similar class products. My current employer is crowing loud about boosting inventory turns to just about 3, showcasing the problems with LTL deliveries and low throughput.
For automakers the inventory turnover is important because their revolving credit is utilized to carry inventory which consumes working capital. The longer it takes to revolve inventory the more interest you are paying to carry inventory and the larger portion of revolving credit you require.
Honda since the 80’s produced soybeans in Ohio and exported them back to Japan in empty car containers (import car parts, export soybeans – they make money on this even to today). Japan has very limited land for agricultural use so they import the vast majority of resources and foodstuffs. Honda also found a way to ship food products on railways.