Attention Truckers: Honda Will Milk You

Bertel Schmitt
by Bertel Schmitt
attention truckers honda will milk you

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.

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  • Cdotson Cdotson on Feb 19, 2011

    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.

  • Jaje Jaje on Feb 19, 2011

    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.

  • Malcolm It's not that commenters attack Tesla, musk has brought it on the company. The delivery of the first semi was half loaded in 70 degree weather hauling potato chips for frito lay. No company underutilizes their loads like this. Musk shouted at the world "look at us". Freightliners e-cascads has been delivering loads for 6-8 months before Tesla delivered one semi. What commenters are asking "What's the actual usable range when in say Leadville when its blowing snow and -20F outside with a full trailer?
  • Funky D I despise Google for a whole host of reasons. So why on earth would I willing spend a large amount of $ on a car that will force Google spyware on me.The only connectivity to the world I will put up with is through my phone, which at least gives me the option of turning it off or disconnecting it from the car should I choose to.No CarPlay, no sale.
  • William I think it's important to understand the factors that made GM as big as it once was and would like to be today. Let's roll back to 1965, or even before that. GM was the biggest of the Big Three. It's main competition was Ford and Chrysler, as well as it's own 5 brands competing with themselves. The import competition was all but non existent. Volkswagen was the most popular imported cars at the time. So GM had its successful 5 brands, and very little competition compared to today's market. GM was big, huge in fact. It was diversified into many other lines of business, from trains to information data processing (EDS). Again GM was huge. But being huge didn't make it better. There are many examples of GM not building the best cars they could, it's no surprise that they were building cars to maximize their profits, not to be the best built cars on the road, the closest brand to achieve that status was Cadillac. Anyone who owned a Cadillac knew it could have been a much higher level of quality than it was. It had a higher level of engineering and design features compared to it's competition. But as my Godfather used to say "how good is good?" Being as good as your competitors, isn't being as good as you could be. So, today GM does not hold 50% of the automotive market as it once did, and because of a multitude of reasons it never will again. No matter how much it improves it's quality, market value and dealer network, based on competition alone it can't have a 50% market share again. It has only 3 of its original 5 brands, and there are too many strong competitors taking pieces of the market share. So that says it's playing in a different game, therfore there's a whole new normal to use as a baseline than before. GM has to continue downsizing to fit into today's market. It can still be big, but in a different game and scale. The new normal will never be the same scale it once was as compared to the now "worlds" automotive industry. Just like how the US railroad industry had to reinvent its self to meet the changing transportation industry, and IBM has had to reinvent its self to play in the ever changing Information Technology industry it finds it's self in. IBM was once the industry leader, now it has to scale it's self down to remain in the industry it created. GM is in the same place that the railroads, IBM and other big companies like AT&T and Standard Oil have found themselves in. It seems like being the industry leader is always followed by having to reinvent it's self to just remain viable. It's part of the business cycle. GM, it's time you accept your fate, not dead, but not huge either.
  • Tassos The Euro spec Taurus is the US spec Ford FUSION.Very few buyers care to see it here. FOrd has stopped making the Fusion long agoWake us when you have some interesting news to report.
  • Marvin Im a current owner of a 2012 Golf R 2 Door with 5 grand on the odometer . Fun car to drive ! It's my summer cruiser. 2006 GLI with 33,000 . The R can be money pit if service by the dealership. For both cars I deal with Foreign car specialist , non union shop but they know their stuff !!! From what I gather the newer R's 22,23' too many electronic controls on the screen, plus the 12 is the last of the of the trouble free ones and fun to drive no on screen electronics Maze !