The automotive industry has always been highly competitive, so manufacturers have always tried to maximize the cost-effectiveness of the operations, which is specifically relevant in supply chain management. Honda is one of the leaders among vehicle manufacturers operating across the globe. In the second part of the twentieth century, the company, as well as its competitors, benefited from outsourcing which enabled them to create opportunities for profit margins (Hong and Park, 2016). However, the trend is now transforming as companies now focus on the opposite models to improve quality, reduce costs, and develop an appropriate image.
For instance, Honda is now reducing its outsourcing due to its focus on localization and enhanced attention to quality. The company utilizes both techniques (insourcing and outsourcing), which is especially true in its operations outside China. Chinese suppliers remain important partners as they manage to provide the necessary components at lower prices (Hong and Park, 2016). However, the Chinese labor market is transforming as well, and costs are increasing for companies, making outsourcing less profitable (Foerstl, Kirchoff and Bals, 2016). Moreover, the lack of established global quality codes and standards poses certain threats to quality. Hence, global companies find the Chinese economy less attractive for outsourcing, and outsourcing becomes only an option rather than a strategic direction. Honda, for example, established the following ratio of insourcing and outsourcing of EGCH systems, 30% and 70% respectively (Hong and Park, 2016). High value-added components are associated with insourcing, while elements that can be accessed from a wide range of suppliers are outsourced.
Reshoring is another trend related to companies’ attempts to avoid any disruptions in supply chain operations. Reshoring encompasses the focus on collaboration with local partners or even the reliance on companies’ own facilities. Vertical integration plays an important role in this process. Manufacturers manage to control quality and supply flow more effectively when reshoring is utilized (Foerstl, Kirchoff and Bals, 2016). The COVID-19 pandemic unveiled the benefits of reshoring as companies had to rely on local suppliers or own production due to the restrictions imposed by the governments of the majority of countries, including China.
One of the methods that were highly employed in the 1990s, especially by such manufacturers as Honda, is now less attractive and associated with multiple risks. Although single-sourcing contributes to the high quality of products and high control over operations, companies’ reliance on these single suppliers is considerable (Foerstl, Kirchoff and Bals, 2016). Therefore, Honda combines single and multiple sourcing to ensure undisrupted logistics operations. The company develops partnerships with suppliers and makes sure that if one of the partners is unable to provide the necessary products (equipment, components, and others), their competitors are addressed. The development of appropriate relations with local communities is another goal achieved with the help of localization and insourcing. It is noteworthy that Honda develops diverse standards and codes for its partners, which enable the vehicle manufacturer to ensure the high quality of its products and services.
In conclusion, outsourcing is becoming a less attractive option for companies operating globally, but it is still one of the utilized techniques. Honda, like many other automotive giants, chooses to combine outsourcing and resourcing, single and multiply sourcing to ensure the undisrupted flow associated with its inbound and outbound logistics. The changes in the Chinese economy, as well as the risks related to such events as pandemics and unprecedented quarantine measures, make insourcing and multiple sourcing a preferred strategy. Honda’s localization ensures undisrupted logistics operations and high quality. It also helps to establish proper relationships with the community, which also contributes to the development of a positive image of the carmaker.
References
Foerstl, K., Kirchoff, J.F. and Bals, L. (2016) ‘Reshoring and insourcing: Drivers and future research directions, International Journal of Physical Distribution and Logistics Management, 46(5), pp. 492–515.
Hong, P. and Park, Y. W. (2016) Building network capabilities in turbulent competitive environments: Business success stories from the BRICs. New York: CRC Press.