Revving up supply chain: The case of Honda

Honda's process for allocating cars to its dealers was so complex that no single person understood all of it. That all changed when the auto giant enlisted the help of e-business consultancy, Syncata.

Manufacturing cars without knowing whether customers will want to buy them does not seem like a formula for business success. But that was the situation at American Honda in Torrance, Calif., and in the rest of the auto industry in the mid-1990s.

Honda's plants produced "pretty much what they wanted," says Honda VP Dan Bonawitz, and where the cars went after that was problematic.

Indeed, as Bonawitz discovered, Honda's process for allocating cars to its dealers was so complex that no single person understood all of it. Seven manufacturing plants in the United States and Japan were producing more than a million Hondas and Acuras each year. The cars were divided equally among 16 U.S. zones (10 zones for Honda, six for Acura), then pushed through to districts, and on to 1,300 dealers who had to sell them. More than 600 variations of models are active in Honda's channels each month. Because the auto industry is regulated, the process is further subject to numerous geographical and state restrictions.

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Bonawitz created committees so that employees and partners involved in different parts of Honda's supply chain could talk to each other. "Our first challenge was to graph every bit of the flow, and the reports generated, and the users and their touch points, to totally understand the current system," he says. "From that we could look at where we could make changes."

Honda began by allowing its 16 zone managers to request cars based on the sales history of the dealers in their zones. Honda had been allocating cars with no regard for preferences, but letting zone managers have a say improved customer service. For example, dealers in the South tended to get lighter-colored cars, and the lead time required for Honda's plants to fill orders dropped by 25 percent—from 120 days to 90 days. In 1996, with help from e-business consultancy Syncata, Honda took a much bigger step and launched MOVE (market-oriented vehicle environment).

Over 10 years, Syncata had done more than 75 phases of various projects for Honda, and as a result of its track record had no competition for MOVE. Founded as NetBase Computing in 1990, Syncata specializes in supply-chain management, customer-relationship management, and other aspects of digital strategy for companies with revenue of $500 million and up. Syncata's vertical-market expertise includes automotive, financial services, high-tech manufacturing and insurance.

MOVE automated Honda's supply chain by having everyone involved communicate across Honda's dealer network. It also reversed Honda's supply chain—dealers, based on information from their customers, could advise Honda on what cars to produce by electronically modifying production orders for Honda's plants. MOVE has consumed three and a half years so far, and it's not done yet.

Deal 'Em Logging on to Honda's extranet, dealers work with their district managers to specify their ideal mix of cars based on parameters such as color and trim. Every month, they have two and a half days to negotiate those orders directly with Honda's national planning group. Meanwhile, the planning group is negotiating with Honda's plants—painting requirements, for example, are different for plants in Japan than they are in the United States. The planning group confirms the orders, and MOVE software calculates the best way to allocate them among Honda's plants and to transport cars to dealers.

Reverse Process Syncata CEO Ujj Nath says MOVE was its most challenging Honda project because MOVE required Honda to function backward from the way the company originally worked.

"[The supply chain] is a very challenging model to transform because it promotes very inconsistent behavior," he says. "Most people don't figure out until they're deep into the model that they have a hot [seller]. So if everybody sells 100 black V6 Honda Accords, they ask for 400 and then 800, hoping to get 200. The factory's job is very difficult, and it's hard to predict demand."

MOVE introduced major changes at Honda, and the project required close collaboration between Syncata and Honda at every step. Syncata laid the foundation by building software bridges to the data in Honda's mainframes—an accomplishment at a time when distributing mainframe data to Unix systems was not considered routine. The companies upgraded the PCs and laptops at Honda's field offices and trained employees to use the MOVE software with a Windows-like GUI, which incorporates information on parts shortages and production constraints. As employees and partners were persuaded to shift to MOVE, every change in technology created a business problem.

For instance, employees in charge of the mainframe had to agree to relinquish control over their data, and dealers had to learn how to analyze customer-demand data.

Syncata and Honda handled those challenges with tight management. MOVE was rolled out in six-month phases by teams of no more than 10 Syncata consultants who met two or three clearly defined goals.

As the demands on MOVE's software grew, Syncata was forced to seek help. At first, Syncata collected data on customer demand from dealers and optimized it according to a few basic characteristics—trim, color, transmission. Then it asked MOVE to calculate how Honda could most efficiently make cars to meet that demand. And then it factored in all 600 Honda and Acura models. Nath hired Patrick Jaillet, chair of the Management Science and Information Systems Department in the University of Texas at Austin's business school, to develop robust algorithms to handle the problems.

Sell Like Dell Currently, two Honda em ployees oversee and enhance the software for MOVE, whose latest phase was completed last October. Honda declines to divulge exactly where MOVE will go from here, although Bonawitz says he is working on the next two iterations. Honda's lead time on orders has dropped to 30 days at some plants, and the company says it has cut both factory and dealer inventories by 50 percent and meets 95 percent of dealers' requests for cars.

One plan is to incorporate e-commerce into MOVE and allow customers to order and track vehicles. Both Syncata and Honda say there are plenty of interesting problems left for MOVE to solve. Along with the rest of the auto industry, Honda aspires to sell cars the way Michael Dell sells computers, by building them when they're ordered. But as MOVE director Jim Foley notes, "A lot of changes have to take place. It's easier to store motherboards."

Nath, meanwhile, is glad Syncata stuck with brick-and-mortar customers like Honda and avoided the dot-coms, an option the company debated and rejected in late 1999. Syncata guarantees its engagements 100 percent, and Nath says it was impossible to do that for customers whose business plans changed daily.

Customer: American Honda, Torrance, Calif. (www.honda.com)

Size: 1,300 dealerships

Business: Automobiles

Business Need: Bottom-up MRP and inventory control

Solutions Provider: Syncata

Hardware: Compaq server, IBM RS/6000

Software: Microsoft Visual Basic, Sybase 11, Unix/C

Deal Maker: Existing relationship

Results: Faster inventory turns, more customized cars

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