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Thai floods affect Honda’s global output

 

The impact of the flood that is continuing to disrupt manufacturing in Thailand has hit Honda’s international production, with adjustments being applied this week across the globe, including all six of its plants in the US and Canada.
 
The Japanese carmaker sustained the most severe disruption with vehicle assembly suspended in Thailand and its supply chain impeded by component makers unable to maintain production. Nearly 200 supplier companies have had to close at the Rojana park in the badly affected Ayutthaya region.
 
“Auto production will be at approximately 50% of the original plan through November 10th,” said the US division of the company in a statement. “Subsequent adjustments will be announced as they are determined, based on the parts supply situation.”
 
Additional measures being taken to manage the available parts supply in the US include the cancellation of all Saturday overtime through November and a full production stoppage on November 11th.
 
The disruption is expected to last for several weeks and will also delay the planned December US launch of the new 2012 Honda CR-V by several weeks, with no alterative date yet announced.
 
While the vast majority of parts and materials used to produce Honda’s US-made vehicles are purchased from suppliers in North America (87% in 2010), some critical electronic parts are sourced from Thailand. The carmaker said it was working closely with its suppliers in Thailand and throughout its global network to reestablish the flow of parts for the products made in North America.
 
American Honda year-to-date sales reached 958,000 in the first 10 months of the year, down 5% against last year’s figures, due in part to the impact of the earthquake in Japan in March this year. October was the company’s best month since with sales down just 1% as the company reported that its US manufacturing facilities were finally up to full production before the latest crises hit the supply chain.
 
Honda Automobile (Thailand) suspended operations on October 4th and does not have a clear outlook for when production will resume because of the flooding of its assembly plant in the Rojana industrial park.

 
Thai Honda Manufacturing, which makes motorcycles and power products, has also suspended operations because of parts supply problems.
 
Other Honda plants in Asia have been making adjustments to production volumes or suspending production due to the limited supply of parts. In Japan, Honda’s Suzuka and Saitama factories will begin production cutbacks on November 7th. Honda’s UK facility is also reducing its weekly production volume.
 
The estimated loss of Honda’s vehicle production in Thailand for the month is between 10,000 and 15,000 units. The total average monthly loss of vehicle production for the wider industry is estimated to be between 80,000-100,000 units.
 
Rival Toyota has also cut overtime at five of its Japanese assembly plants as it prepares for a possible shortage of parts imported from Thailand. The company expects to lose 6,000 units of Japanese output. Toyota’s Thai plant in Chachoengsao has stopped production because of supply chain disruption in Ayutthaya and Pathumthani provinces, with up to three weeks of production expected. Estimated production losses are expected to be around 30,000-35,000 units for Toyota.
 
As with Toyota, Honda is looking at an increase in the stockpile of automotive parts and a revision of the just-in-time delivery strategy in an effort to ensure it has enough stock for at least a month in the event of any future disruptions.
 
Following on from the impact to the supply chain that the Japanese earthquake caused, this latest natural disaster also means that carmakers are relying on emergency logistics services to meet increased production demands while facing challenges of low inventory. In a recent survey involving 50 supply chain managers conducted by Evolution Time Critical the company reveals that increased production in the wake of natural disasters is the cause for an increase in the need for emergency logistics services.
 
"The recent natural disasters have encouraged manufacturers and tier one suppliers to look deeper into their supply chains and companies who were once invisible to OEMs will now be on the radar," said Evolution Time Critical's managing director, Brad Brennan. "OEMs and tier ones are now geographically diversifying their supply chain, sourcing material from new suppliers to avoid losing the whole supply due to one localised issue. This diversification and upheaval naturally produces its own set of challenges."
 
The Thai government is also taking measures to stem the impact of the floods with 350 pumping machines now distributed to help drain water from the industrial estates and plans to build a concrete dike up to four metres high around the estate to defend it in the future.