Larry Jutte: Moving suppliers closer to Honda's assembly plants makes good financial sense.
Larry Jutte, Honda's senior vice president for procurement in North America, says that as trucking costs rise, the idea of moving some suppliers closer to Honda's property "is beginning to make more financial sense."
Trucking costs have risen dramatically in recent years, largely because of higher diesel fuel prices. Last week diesel prices hovered around $2.80 a gallon, up 79 cents, or about 39 percent, from a year ago, according to the U.S. Department of Energy.
"We're studying a lot of things from a logistics point of view," Jutte says. "There are certain subassemblies that we could move closer to us or even bring inside."
If so, Honda would be following the same path as its two closest rivals, Nissan North America Inc. and Toyota Motor Manufacturing North America Inc. Nissan has moved a number of suppliers onto its assembly plant property in both Canton, Miss., and Smyrna, Tenn., over the past three years.
Toyota is constructing a pickup plant in San Antonio that also will incorporate on-site component producers.
Both competitors did so, they said, to reduce transportation costs, eliminate part handling and cut warehousing costs. Nissan has supplier employees assembling part modules inside its Smyrna plant.
Until now, Honda has left its North American supply chain to operate much as it has for two decades.
About 600 parts companies now ship parts to assembly plants in Ohio, Alabama and Ontario.
And unlike its Big 3 competitors, Honda has been reluctant to turn over module subassembly work to outside suppliers.
"We never jumped on that bandwagon of outsourcing entire modules," Jutte says.
But Honda now is considering ideas for future vehicle parts, he adds. "In some cases, we'd like to eliminate subassemblies altogether, and we're already beginning to do some of that."
The redesigned Civic that debuted in September has an engine harness that comes assembled and a relay box that is molded into place.
Jutte declined to say which suppliers might be considered for relocation. But he said improving employee safety also will be a factor in the decisions about where parts are subassembled.
"If we can reduce the stress and strain on our associates and improve safety by making a part differently," he says, "then it might make more sense to assemble it outside in the future."
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