Honda supply chain integration put on hold

Honda Motor Company has postponed by three years part of its plans to integrate the supply chain and logistics of the four companies -- Hero Honda, Honda Siel Cars, Honda Motorcycle & Scooters India and Honda Siel Power Products. Honda had earlier said the integration would be completed by 2007-08. However, it now says that this will be done only by 2010.

"We will integrate the logistics of our two-wheeler business into Hero Honda and Honda Motorcycle and Scooters by 2010 when the goods and services tax will be implemented in the country," Masahiro Takedagawa, the South Asia head of Honda, told Business Standard.

Honda Motor India, however, has already started operations with the integration of the spare parts business of Honda Siel Cars with the power tool business of Honda Siel Power Products.

"We are not in a hurry to integrate the logistic operation of Hero Honda and Honda Motorcycle and Scooters," Takedagawa said.

The proposal had got a lukewarm response from the Munjals of the Hero group, Honda's partner in Hero Honda, the country's leading two-wheeler producer.

Pawan Munjal, managing director, Hero Honda, had told Business Standard last month: "We have no issues. Honda is our joint venture partner, but we already have a good arrangement for spares."

Honda had floated a new special purpose company, Honda Motor India, to integrate its entire supply chain for its cars, two-wheelers and gensets businesses under a single operation.

The Munjals had been cold to the proposal as Hero Honda had its own supply chain and any integration could disrupt it.

By integrating the supply chain and logistics of the four companies, Honda was planning to bring about savings of 20 per cent in production costs. With the postponement, these savings will now accrue to the companies only in 2010.

While Hero Honda, Honda Motorcycle and Scooters and Honda Siel Power Products have their main production units in Haryana, that of Honda Siel Cars is in Uttar Pradesh. According to Takedagawa, this resulted in cross-border tax issues.

The problem is further compounded by Hero Honda setting up its third facility at Haridwar in Uttrakhand, while Honda Siel Cars' second car plant is coming up in Rajasthan.