Honda is making some some massive changes across its operations in North America as it prepares for a surge in production of electric vehicles and a big rise in supply chain and technology costs.

Screen-Shot-2019-03-26-at-12.46.40-300x211.

The 2019 Honda Clarity Electric was among the top “greenest vehicles” named by the American Council for an Energy-Efficient Economy. Globally, electrified vehicles are set to account for two-thirds of Honda’s new-car sales by 2030 (Image: Honda)

Speaking at The Supply Chain Conference last week in Atlanta, George Grahovac, Honda of America’s new senior manager at its North America Operations Office, said the company is spending around $1.2 billion a year on the logistics involved in getting parts from its 600 tier one suppliers to its plants in the region.

But cost pressures are increasing in the supply chain for a number of reasons, he said, including the shift towards electrification. By 2030, Honda plans to make two-thirds of its vehicle output in the region electrified and, in preparation, the company is retooling and shifting production to manage what Grahovac described as a “massive change.” 

“Preparing for the future of powertrains is really becoming a daunting task from the manufacturing side and, of course, with the supply chain side keeping up,” he said.

What is hitting the expense side in the supply chain area is an increase in transport costs – in part a consequence of the serious driver shortage. On top of the dearth of available manpower increasing driver rates, said Grahovac, costs have risen as a result of regulatory changes.

Regulations enforcing the use of electronic logging devices (ELDs) in trucks over 4.5 tonnes were introduced in December 2017 to put stricter limits on driving and duty times. That has pushed up costs for carriers. Apart from the expense of installing the devices and training drivers, there has also been a loss of productivity.

Honda is making adjustments in other areas, too, as it seeks to bring cost efficiency to the inbound supply chain – and that includes moving away from just-in-time (JIT) delivery, a methodology usually central to Japanese manufacturing.

“For us, it is now more important to fill the trailer and get as much cube on that trailer as possible coming in,” said Grahovac. “We know that cube-miles as well as trailers are more expensive than warehouse space, so we are trying to rightsize the warehouse. Before it was one day – no more, no less – but we are rethinking that model.”