Remarks for Larry Jutte, Traverse City Conference (Part 2 of 2)

8/6/2004 10:42:30 PM

For Honda, it is never enough to have quality as good as others. A case in point came with the release of the most recent IQS numbers. Honda was the number one non-luxury brand. But I can tell you there was not a single headline in America making that announcement. The story everyone wanted to write about were improvements by Hyundai or domestic brands like Cadillac. Don't get me wrong, I am not complaining about the news coverage. It just demonstrates clearly that media - like our customers - have higher expectations for Honda when it comes to quality. And we plan to exceed those expectations.

For the past five years, we have been introducing Honda's flexible New Manufacturing System on a global basis, including all of Honda's North American auto plants. This new system reduces tooling costs associated with new model launches. It increases launch speed and initial quality. And makes it quicker and less costly to add models to our plants. Already, we have achieved a great deal of flexibility for car and light truck production at our North American plants..

In May of this year, we began building a new paint facility at the Marysville Auto Plant. This major expansion will introduce waterborne paint systems that are already found at newer Honda facilities. And will go into full operation in mid-2006. Along with other new paint systems developed by Honda, this is expected to reduce emissions by 41 percent and improve energy efficiency by 34 percent. These investments show how continuing to invest in manufacturing quality, efficiency and flexibility enables us to create new value for our customers.

I began today by talking about the importance of values to Honda. But I think a relevant question for all companies is "What are your core values? What makes your company unique or special? And does your self-image match reality?" If not -- to realize improvement -- you shouldn't focus just on trailing indicator metrics. Focus on the characteristics that will lead to success in the future.

A supplier might get our attention with a very competitive price ... but they won't necessarily get our business. We want suppliers with the whole package ... robust quality systems, delivery management and development capabilities ... who work in a respectful manner with their own workforce. When we visit a supplier and talk to their people, we can tell immediately how they do business.

Based on these years of going "to the spot," we identified key characteristics of strong suppliers. We shared this "road map" earlier this year with our own supply base ... and I thought I would share it with you today. I am not going to review every detail. But I will explain several key areas. Similar to Honda's business model, we found that company culture is an extremely important characteristic for successful suppliers. This includes strong leadership - top management that frequently goes "to the spot" to motivate and involve their associates.

The process really begins with a company vision focused on the customer. This has to be central to why you are in business. Based on a customer focus, the best suppliers are willing to take chances - to develop a new part or process ahead of others. In other words, to bring new value to their customers.

With a view toward achieving global competitiveness, is the need for suppliers to create new products that offer exceptional value to their customers ... something we cannot achieve on our own - or obtain from others. Early this year, as part of new model planning, we compared the total unit cost of all commodities and part types in North America to other regions. Analyzing current cost gaps revealed that a large number of suppliers in North America are not globally competitive. We identified production characteristics as one of the primary factors in this cost gap. Achieving global cost competitiveness will require innovation in this area.

Improving production characteristics begins with identifying the benchmark in your business ... then, assessing your relative position to that benchmark in order to determine your plans to exceed it. Suppliers also must innovate production facilities from dedicated lines to flexible lines to match the flexibility achieved by their customer. Look for other ways to reduce capital investment in equipment and tooling. And, compared to global benchmarks, suppliers must look for production efficiency improvements through your entire operations - and reduce waste by optimizing material yield, scrap reduction and inventory control.

After achieving global competitiveness, other essential elements of the road map include the need for advance planning for resource deployment including new model preparation ... the ability to execute to the plan in production ... and customer satisfaction - exceeding the buyer's expectations - is the end goal.

But the real purpose behind the development of this road map, was our interest in looking ahead to the next 25 years of Honda's manufacturing operations in North America. Our goal is to remain a brand of choice ... based on our ability to create new value for our customers. But to achieve that, we must make sure that the companies with whom we have chosen to have relationships - will remain "suppliers of choice" -- so that we can continue to create new value together.

This means suppliers must know the benchmark in their industry - and honestly identify any gaps to that benchmark ... as a means to achieve global competitiveness. Suppliers of choice also listen to their customers - making sure they understand their partner's expectations . . . whether they are currently satisfied ... and where they most need support. These suppliers also listen to their associates ... because empowering people on the shop floor in continuous improvement activities is the key to achieving real and sustained improvement.

Suppliers must provide strong leadership and direction - management must "go to the spot" to monitor performance -- which means into the labs, onto the shop floor, and out to the loading dock. Every "touch point" to the customer must be closely managed. Finally ... underlying all of this ... is our belief that suppliers of choice understand the values that are most important to their business partners. And make certain their own corporate culture is well understood throughout their company and by their partners.

In this way, no matter how challenging the business environment may become ... suppliers and OEMs will have the type of rock-solid relationship that is not only mutually satisfying ... but has the strength to withstand a "perfect storm." Thank you for your attention. I look forward to your questions.