Automotive supply chains depend on tight coordination between a manufacturer and its many suppliers. But some of the basic technology to optimize those connections has been lacking until now.

For decades, automakers have sought to fashion a “just-in-time” pipeline for the flow of parts to the production line. In fact, the concept of minimal stored inventory goes all the way back to the 1960s, when Toyota began implementing it in Japan.

Nevertheless, glitches have continued to occur, caused in large part by miscommunication and misaligned stocking strategies between suppliers and the plant floor. That has led to a buildup of inventory and unacceptably high levels of waste in the manufacturing process.

For Honda of America Manufacturing, Inc., a particular pain point was the packaging that contained parts destined for the line, then had to be returned to the supplier. It had a system in place for managing that asset, but “it hasn’t moved with the times,” says Roger McIntyre, department manager of material service with Honda of America. “As our supply chain has gotten more complex, we’ve outgrown it.”

The result was lost containers and a general lack of visibility of materials. The automaker was burdened with high costs stemming from inefficient handling of returns to suppliers. When a returnable pack was unavailable, the supplier would have to resort to using corrugated boxes, which could not be reused or efficiently stored or loaded into trucks. Or it would have to expedite the shipment of reusables back to the supplier.

A key reason for the deficiency was the lack of radio frequency identification (RFID) tags on the packs. Honda’s old return container management (RCM) system did involve the placement of an I.D. number on each pack, but it was in the form of a tag that yielded minimal information and didn’t allow for tracking and tracing.

The I.D. number would print off on a pick ticket, so that Honda would know when it had to return a set number of containers to the supplier. What it lacked was knowledge of exactly when those packs left the dock, when they reached the supplier, and whether they were shipped to the wrong location or in insufficient quantities.

RFID offered only part of the solution. What Honda needed was an entirely new system for communicating and collaborating with its Tier 1 suppliers. Automakers have wrestled with that problem for years, trying out various internet-based solutions and supplier-management platforms. Now, Honda of America appears to have found one that fills the bill.

At an industry conference several years ago, Honda executives encountered representatives of Surgere, developer of a web-based community for managing the packaging supply chain. Dubbed Autosphere, the tool was specifically designed to link automotive original equipment manufacturers (OEMs) with their Tier 1 suppliers. It relies on sensor technology to track mobile assets such as containers and racks.

Surgere chief executive officer Bill Wappler cites research by the Automotive Industry Action Group (AIAG) showing that the industry loses between 16 and 18 percent of reusable packaging assets annually. That’s a “multi-billion-dollar problem,” he says.

For Surgere, the key was delivering the appropriate technology in the form of a community. It allows supply-chain partners to engage in the same set of activities while drawing on a common database.

Relevant data can pinpoint when the supplier has loaded a truck, what’s on the vehicle, where it is en route, when it arrives at the distribution center, and when the OEM accepted receipt. In addition – and this is the part that appealed to Honda of America – the system allows for close tracking of empty containers when returned to the supplier.

Mike Jett, Honda of America’s division manager of supply chain, had seen the application of RFID tags to packaging assets while visiting Japan. “They had scanners throughout the plant,” he recalls. “They could visualize inventories that moved throughout the consolidation centers into the staging and delivery areas.” That’s the kind of visibility that Honda sought for its plants in Marysville and East Liberty, OH.

The larger implications were significant. Jett estimates that Honda has $500m in packaging assets at its various facilities in North America. “We wanted the capability to manage those assets and prevent loss,” he says.

Honda of America spent three years making the final selection of the system and undergoing a pilot with selected suppliers. It’s still rolling out the technology to the two Ohio plants’ supplier base of approximately 350 Tier 1’s.

Tagging the containers “is a very challenging activity, to say the least,” notes McIntyre. The project also requires training and an updating of key processes. A full rollout, he says, is scheduled to go live in May and finish up around July.

“We’re not going gangbusters,” he says. “We want to make sure everything’s working.”

In the next fiscal year, Honda plans to extend the system to an engine plant in Anna, OH, 50 miles away from East Liberty, as well as plants in Anniston, AL and Guadalajara and Celaya, Mexico. Over the next two years, the automaker expects to bring into the system between 1,000 and 1,200 suppliers throughout North America, McIntyre says.

Already, Honda has seen benefits in the form of a smoother flow of packaging assets between the Ohio plants and suppliers, better overall visibility, and fewer lost containers, Jett says.

He envisions the technology extending eventually up the supply chain. “As this digital age continues to mature,” he says, “our suppliers are going to see the benefit and start driving up into the Tier 2’s and 3’s. The benefit is going to be obvious, as the product begins to mature.”