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Established in 1999, the Honda Mot orcycle & Scooter India Pvt. Ltd. (HMSI) is a wholly
owned subsidiary of Honda Motor Company Ltd. Its production facility started In 2001 in
Manesar, Haryana, India. The company's most well known brand is the Honda Activa that
revolutionized the Indian sco oter market in terms of design and features. It has the biggest
market share of 51% in gearless scooter. The company exports scooters to the European
Union. Company is now for its quality product and services.

<)$! *The HMSI factory is spread over 52 acres, with a covered area of about 85,815
square meters at Manesar, Gurgaon district of Haryana. The foundation stone for the
factory was laid on 14th December 1999 and the factory was completed in January 2001.
The initial installed capacity was 100,000 scooters per year, which has reached 6,00,000
scooters by the year by 2007 and motorcycle capacity shall be 4,00,000 per annum. The
total investment outlay for the initial capacity was Rs. 215 crores and now the accumulated
investment is 800 crores. 

!$)%!: The Company is located in Haryana. This gives it immense competitive advantage.
Haryana is the temptation of all entrepreneurial eyes as it is a hub of industrial investment
and of special economic zones (SEZs). Pro -industry policies pursued by his g overnment have
made Haryana attract hordes of investment, both domestic and foreign.

%- %6#%!/=! 8: The Company has a conscious strategy of penetrating new markets
and unrepresented territories through its distribution network of dealers, authorized
representatives, stockiest and SSPs. In March 2001, the company had 826 such sales and
service points in India. By March 2009, this number had grown to more than 3500.
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HMSI operates on a principle, which is followed worl dwide by all Honda companies.
Maintaining a global viewpoint, we are dedicated to supplying products of the
highest quality, yet at a reasonable price for worldwide customer satisfaction.
Honda's philosophy is based on the company's guiding principle and a dvocates 2
fundamental beliefs:

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Honda recognizes and respects individual differences. The respect for individual stems from the
following three points:

» Initiative
» Equality
» Trust

It is the contribution from each individual in the company that has made our company what it is
today and that, which will take us into the future.
+/+ //!*-

In line with Honda's Philosophy, HMSI conducts all its daily activities in pursuit of the
following joys:

» The joy of manufacturing high quality products.

» The joy of selling high quality products
» The joy of buying high quality products


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Honda has regularly worked with R& D to enhance the safety and performance of their
product. Some of the technologies a re as follows:

1. ? Combi Break System

Generally it is not easy to control a 2 -wheeler while braking during emergencies and
bad road conditions. This system not only allows easy & simultaneous operation of
the front & rear brake but also provides optimal braking performance. Once the left
side brake lever is pressed, the system distributes the appropriate braking power
between the front and rear wheels, which assures complete safety for the rider.
2. ? HondaMatic Transmission

The compact, efficient & oil pressure controlled Hondamatic Transmission is the
world's first fully automatic transmission system, which delivers a dynamic
combination of torque & excellent accelerator response for a constant and superior
driving experience. The transmission is being used in Honda's all terrain vehicles.
Honda is working hard to introduce this Hondamatic in two -wheelers.

3. ? Fuel Injection System

Honda's fuel injection technology is designed to realise ideal combustion, which

results in delivering maximum power output, greatly improved fuel efficiency and
yet be environment-friendly.

4. ? Idle Stop System

Honda has created an advanced Idle Stop System (see image below) that reduces
fuel consumption while totally blocking out toxic exhaust ga s and unwanted noise. It
enables the engine to stop automatically for 3 seconds after the vehicle stops
moving. And when the throttle is opened, the vehicle engine restarts and takes off
smoothly.

5. ? Honda Fuel Cell Vehicle, Honda FCX

The Honda FCX has become the first fuel cell vehicle in the world to receive
government certification, paving the way for the commercial use of fuel cell vehicles.
Honda FCX has earned approval from the US EPA (Environmental Protection Agency)
and CARB (California Air Resour ce Board). Honda FCX manages to produce 81 bhp
and 26 massive kgm of torque. The vehicle is said to achieve powerful off - the- line
acceleration and a top speed of 150 kph. With 156.6 litre capacity in the 350 -
atmosphere high pressure fuel tank, FCX has a range of 355 kms.
 
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The Indian motorcycle industry has become extremely competitive. Global auto giants from
Yamaha to Suzuki to even Harley-Davidson are keen on India. Bajaj Auto and TVS Motor are
not taking it easy either. Undoubtedly, the new competitors pose a formidable challenge in
the premium segment with dazzling models, which will attract the affluent metro crowd.
Despite the adverse conditions in the two-wheeler industry.

HMSI currently occupies the leading position in the scooter s segment with a market share of
51% (April-January 2010) and drawing on its flagship brand Activa (besides Aviator and Dio).
It is followed by TVS (Scooty Pep+ and Streak), which has a market share of 22%. In the past,
several players such as Scooters India Limited, Kinetic Motor Company Limited (KMC), and
LML Limited exited the segment, unable to run a profitable business in a scenario of
declining volumes industry-wide; even BAL has recently announced that it plans to exit from
scooters. That notwithstanding, the segment has also seen several relatively new entrants in
the form of HHML, which launched Pleasure in January 2006 and MIPL which launched
Access 125 in September 2007. Besides, Mahindra & Mahindra has also entered the 2W
circuit via its acquisition of the business assets of KMC in July 2008.
With the likely slowdown in volume growth over the medium term that will arise from a
maturing motorcycle market, competition for market share and volumes from these players
will exert pressures on the profitability of the industry and consequently HMSI.

# /) 8/ /"

The two-wheeler (2W) industry has shown a healthy volume growth of 21.9% (y -o-y)

2W sales in India are spread across three main product categories: motorcycles, scooters,
and mopeds. While in the previous decade, scooters were the largest selling product
category, in the current one, consumer preferences appear to have shifted decisively in
favour of motorcycles, which now account for over 80% of total 2W sales in India.
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This section is divided into two parts ʹ the Scooter and Motorcycle Division

Products manufactures in Motorcycle division ʹ

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Products manufactures in Motorcycle division ʹ

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The motorcycle division currently produces scooters such as Dio, Aviator and Eterno also.
This is due to the very heavy demand for the Honda Activa. This is the solely produced in the
Scooter division so that its production capacity can be maximised.

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This is the primary division of the company manufacturing all the products in the HMSI
lineup. The parts that are currently manufactured in this department are the engine and
the steel body, all other parts are sourced from vendors. It is further divided into ʹ

a)? Power train ʹ it is concerned with the production of critical parts like the engine,
crankshaft, transmission and their assembly. Assembly of the vehicle frame takes
place in further assembly lines
b)? Paint ʹ painting of parts such as the steel body is carried out in this section
c)? Welding ʹ Weld Shop has spot welding, seam welding and MIG welding machines to
weld various sheet metal parts to form the basic frame and other scooter panels
d)? PPC ʹ production planning a nd control. This department decides the amount of
various products to be produced each day. It handles capacity utilisation and has to
work closely with the purchase and the sales department

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This department is involved with the services that are provided to each customer.
Customers are a high priority for Honda and it constantly innovated itself to provide
maximum customer satisfaction.
a)? Training ʹ it provides training to the employees at various dealers and services
stations about how to service Honda products
b)? CRM ʹ Customer Relationship Manager. It handles all customer grievances as well as
follow ups for prospective customers
c)? Warranty ʹ takes care of the warranty services and addressal of customer problems

.A? ),/-
It is concerned with the marketing and sales of the products. It sets out the sales
targets for each year and works closely in hand with the dealers for final sales. It has
developed its own software called the dealership management System through
which it gets instant updates related to sales at various dealers. This helps to identify
any shortfalls in sales or excess demand which has to be met.
 Honda has a policy of marketing through dealers rather than doing the company͛s
advertising. For this the sales division provides help and support to all dealers to
achieve their objectives.
a)? Business plan unit ʹ this section sets out the marketing plans for each year. Sales
targets are decided and marketing strategy is worked out
b)? Training ʹ Honda has come up with a new system through which it provides driving
training to new customers. This is done through test driving and use of simulators. It
achieves the twin objectives of maximising sales and providing customer satisfaction.
c)? Network plan unit ʹ it deals with the distribution network for sales. New dealers are
developed, service centres are added. New markets are identified for sales.

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It is another critical department for the factory. Its work is to procure the parts and
supplies for the manufacturing plant. H onda has a policy whereby almost all the
parts that go into a product are sourced from outside vendors. This has helped to
keep down production costs. Every day the purchase department is in contact with
the vendors to obtain details about the supplies to be expected. This then decides
the plant production for that day. There are many large and small vendors of Honda
located in various locations like ʹ
Gurgaon
Faridabad
Ludhiana
Bangalore
a)? MPD ʹ mass production department. It handles procurement of parts tha t are
needed daily in huge quantities for manufacturing
b)? CPD - Cost plan department ʹ it works to identify cost of new supplies when
there is change in any product or a new product is to be launched. It helps to
decide the costing of the products
c)? PDD ʹ product development department ʹ it concerned with the research into
new vehicles or improvements in the existing ones
d)? GP ʹ general supplies ʹ it procures the office supplies

3A? #),%*

Honda believes in supplying the highest quality products to its customers. Therefore
the quality department receives high priority. It is divided into multiple departments
which perform quality checks at various stages of production to ensure there are no
quality issues. This department has a lot of work as Honda procures supplie s from
outside vendors whose quality might not match Honda͛s quality standards.
 a)? Vehicle quality ʹ it performs quality checks of the final assembled product such
as wheel alignment, working of brakes, handle alignment. These are only
external checks
b)? Parts quality ʹ it checks the quality of each part that is received from the outside
before it can be put into production
c)? Homologation ʹ this section ensures that vehicles meet the standards that are
set by the Government such as emission and fuel consumption a nd parts quality.
There is a 20 point agenda that is followed. A few sample vehicles are check in
each batch in this department
d)? Engineering quality ʹ this section performs more detailed inspection of each unit
such as checking electrical connections, screws etc
e)? Export ʹ this section deals with those vehicles that are to be exported. Due to
different regulation and rules in foreign countries higher quality standards have
to be maintained in the export units. Also many vehicles have to be modified due
to certain regulations, such as engines have to be upgraded due to stricter
emission norms. Export units are sent via two methods ʹ

ʹ Complete knocked down units ʹ in this the disassembled parts are
exported to a country. Factory present in the export country will then
reassemble the vehicle and inspect it before sending it to sales
 ʹ Completely built unit ʹ in this the fully assembled vehicle is shipped in
boxes to the foreign country. In certain cases the vehicle name is different in the
export country. So appropriate changes are made before it is packed
Ex. Stunner is shipped under the name CBF 125 a nd the Deo has the name Lead

5A? 
The human resource department is concerned with employee management and
training. HR policies are constantly updated for employee satisfaction and optimising
workload. Every new employee is trained in all departments so they can develop a
complete idea about the working of the company. A major challenge for HR is the
labour force. Due to the labour union there have been many problems related to
their management. The permanent labourers take their work very casually and take
holidays without notice. Many of them are not efficient at work.

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Its concerns are transportation of the finished goods. It mainly involves utilising the
right amount of trucks for transportation thereby minimising costs. The trucks
available have a capacity of 45, 54 or 62 v ehicles. Another concern is safety while
transportation. The vehicles are adequately packed so there is no damage during
transportation. The material to be used for this purpose is also efficiently utilised to
keep costs down
 3
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The term ͚5s͛ refers to the methodology of workplace organization. The five͚s͛ refer to the Japanese
words ʹ _
_
_
__
 _ _

_   The 5s methodology comprises of five phases, and
each of these terms represents a particular phase.

The five phases of ͚5s͛ are:

Ä? Sorting (_
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Ä? Stabilize (_
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Ä? Systematic Cleaning (_
_)
Ä? Standardizing (_
 _ )
Ä? Self Discipline (_

_  )

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This phase involves sorting of all the tools, materials, instructions etc so as to retain only the
essential ones and eliminate the rest.Another important objective of this phase is to prioritize the
things as per their requirement, and keep them at distinct but easily approachable places as per
their priorities.

)6%,%2/B_
A

This phase is also referred to as Straightening, Simplifying, or Setting in Order.

The first step is to ensure there is a place for every item ʹ clearly demarcated arranged properly so
as to promote efficient workflow. Each item should be placed as close as possible to the point where
it is to be used, thus ensuring comfort for the operating workers. The next step is to make sure that
all items are placed at their respective demarcated locations.

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The other terms used for this phase are Sweeping, Shining, or Cleanliness.The major focus of this
phase is on keeping the workplace tidy and organized, to inculcate cleanliness as part of the daily
routine, and not an occasional activity. The workplace should be cleaned and every item restored to
its particular place after each and every shift positively.

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This ensures that the workplace is standardized. All the workplaces that perform the same jobs
should be made exactly identical, including the location of the tools and other items. This would
enable all the workers performing same jobs to work at any of these workstations without any
impact on the work output.

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After the successful implementation of the first for ͚S͛, this phase takes care that there is no
degradation or decline in the workplace organization, while simultaneously looking out for better
ways, exploring further possible improvements in the workplace organization.
 

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The term Assembly Line refers to a plant layout in which the manufacturing process involves
addition of parts or components to a product in sequential manner in order to obtain the final
product output.

The assembly line model was first conceived by Henry Ford of the Ford Motor Company. Ford used
the Assembly Line model which led to the mass production of the famous Ford model ʹ T.

Assembly line provides the following advantages:

Ä? Optimal usage of logistics and materials

Ä? The end product is created much faster
Ä? Reduction in the labour hours required per unit of output
Ä? Reduced cycle time leading to increase in the total production output
Ä? Mass production leading to economies of scale resulting in reduced costs
Ä? Production of standardized output with minimal tolerance levels

The assembly line model is particularly suitable for products that involve sequential production
activities, and involve highly standardized and uniform output.

The products that are well suited for assembly line method of production involve toys, appliances,
automobiles, planes, guns, garden equipment, clothing etc. To generalize, it may be concluded that
any product that involves multiple components and is produced In large quantities would qualify as a
good candidate for assembly line production. The assembly lines may be classified on many basis, a
few of which are as follows:

-? Material handling devices

-? Belt or roller conveyor
-? Overhead crane
-? Line configuration
-? U-shape
-? Straight
-? Branching
-? Pacing
-? Mechanical
-? Human
-? Product mix
-? Single product
-? Multiple products
-? Workstation characteristics
-? Workers sit
-? Workers stand
-? Workers walk with the line
-? Length of line
-? Few workers
-? Many workers
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The widespread use of assembly lines has led to a dramatic increase in the output rates. The major
reason for this being the reduced cycle times coupled with the better utilization of labor as well as
machinery. The focus in assembly line has always been on reducing the idle time ʹ both human as
well as of equipments ʹ thus resulting in better utilization.

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The current view of assembly lines focuses on the following aspects:

-? Greater flexibility of the products produced

-? Higher variability in workstations
-? Improved reliability through preventive maintenance
-? High quality output through improved processes and trainings.

+/ !"#$!")$%7)

The company set benchmarks in the Indian scooter industry with the launch of its gearless
scooter Honda Activa. Honda Activa is an easy to ride two wheeler with good pick -up and
high reliability. Thanks to its user-friendly features, it has been quite successful in India. The
vehicle has the option of kick and self -starts, and one can choose according to one͛s
preferences. Activa has been catering the need of gear less scooters since a long time in
Indian markets. The performance outcomes are really amazing. Honda Activa is always a
priority for people because of its high performance and efficiency . Technical Specifications ʹ

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For the administration -

8:30 am to 5:00 pm

Work shifts in the manufacturing plant ʹ

A ʹ 6:30 am to 3:00pm

B ʹ 3:00 pm to 11:30 pm

C ʹ 11:30 pm to 6:30 am

Out of these 3 available shifts only shift A and B operate on a regular basis. Shift C is used
only in times of emergency such as underproduction in the first 2 shifts or there in an
intense demand in the market. The productivity level in shift C is much lower than A and B
as it only few workers work in it

In each shift a total of 1200 Activa͛s and 1100 other vehicles can be produced at full
capacity. Thus a total of 4600 vehicle s can be produced at a regular basis in the shift A and B

Shift A Shift B
Activa 1200 1200
Scooters and motorcycles 1100 1100

This means that it takes about 24 seconds for one Activa to come out of the assembly lin e.
For a motorcycle the cycle time is 26.2 seconds
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The main problem is under utilisation of manufacturing capacity .

With 300 working days in a year it gives a capacity of 13,80,000 vehicles in a year. With the
added capacity of shift C a total of 16,00,000 vehicles can be made in an year. However
actual production is much lesser than this. On some days production falls down to 2000
vehicles in a shift which is a drop of almost 23%. Due to under production full capacity
utilisation is never achieved. Last year with a capacity of 15,00,000 vehicles it could produce
only 11,00,000 vehicles which is a utilisation of only 73% of the capacity. In the current year
Honda estimated that only 13,00,000 vehicles will be produced despite the larger capacity.
This gives a capacity utilisation of just 81.25% percent which is higher than the last year but
still not adequate.

The under utilisation is not because of assembly line problems. Honda has a highly efficient
assembly line process which makes sure that there are no bottlenecks in the system. All the
assembly lines are completely integrated to ensure that there is minimum waiting time. The
causes for this are ʹ

1) ? Vendor supply problems

As Honda almost completely sources its parts from outside it is highly dependent on
them to achieve its daily production targets. A number of suppliers both large and small
send their parts to the Honda plant in trucks, autos and sometimes in cars. Any shortfall
in supply from even o ne vendor can lead to production shortage. To prevent such
occurrences frequently they have 2 to 3 backup suppliers for certain parts but this also is
not enough to ensure consistent supply. They have been working on vendor
development to ensure a more reliable supply of parts but there are still problems

2) ? Quality issues

Honda believes in setting the highest possible standards for its products. However its
dependence on external suppliers causes conflict with this principle. Certain times the
parts they receive are of poor quality are rejected by the materials service department.
This then leads to shortfall in production as parts from other vendors cannot be
obtained so easily.
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Ä? Generates cost savings, only if volume needed is big enough to capture efficiencies
of suppliers
Ä? Potential to reduce costs exists when
Ä? Suppliers have sizable profit margins
Ä? Item supplied is a major cost component
Ä? Resource requirements are easily met
Ä? Can produce a differentiation-based competitive advantage when it results in a
better quality part
Ä? Reduces risk of depending on suppliers of crucial raw materials / parts / components
Ä? Reduce transportation costs if common ownership results i n closer geographic
proximity
Ä? Improves supply chain co-ordination
Ä? Increase entry barriers to potential competitors
Taking a leaf out of the books of Tata Motors, who had also faced in the past similar vendor
related issues and who had resorted to backward integration to solve the same, we can see
that Honda can too take refuge in this method. They need to work very closely with one or
two of their trustworthy vendors and help train them up and bring them at par with the
latest technologies and techniques in the field of manufacturing for the parts that they
produce.

Honda needs to gain their trust and possibly take up a stake in the company and push them
towards upgrading their current facilities and technology, the plant workers need to be
trained to be more efficient. If possible, the vendor should be turned into an exclusive
supplier of Honda.

The added advantage for Honda would be that since these vendors would be trained Honda
personnel their manufactured supplies would consistently be of the best qualit y that they
require.

As for the problems with labour it is an HR issue. There are not many options available to
the company for dealing with these problems due to the strict labour laws in India. However
the management is in negotiations with the labour un ion to reach more agreeable terms on
the work related issues.


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Backward integration does not come without its drawbacks.

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Ä? Boosts resource requirements

Ä? Locks firm deeper into same industry
Ä? Results in fixed sources of supply and less flexibility in accommodating buyer
demands for product variety
Ä? Poses all types of capacity-matching problems. For example, the firm may need to
build excess upstream capacity to ensure that its downstream operations have
sufficient supply under all demand conditions
Ä? May require radically different skills / capabilities
Ä? Reduces flexibility to make changes in component parts which may lengthen design
time and ability to introduce new products

!-)"!-!4/0 )%!7-/ /0 )%!

Whether vertical integration is a viable strategic option depends on its

Ä? Ability to lower cost, build expertise, increase differentiation, or enhance

performance of strategy-critical activities
Ä? m Impact on investment cost, flexibility, and administrative overhead
Ä? m Contribution to enhancing a firm's competitiveness

!'%0-(/$%4%$),,*!+/( !6,/'-+)!")'%0+4)$/ 

They have traditionally been distant from the prospect of backward integration in India.

Ä? They are already facing union issues with their main plant and matters would further
escalate with the integration of companies upstream/downstream.
Ä? They would also have to deal with the union related issues of the plant they
integrate with theirs.
Ä? Bureaucratic issues can arise while acquiring the new plants.
 Ä? Political ramifications of a FDI venture.
Ä? Trust issues of training the vendor and competitors benefitting from them.
Ä? Honda has recently invested heavily in the setting up of a new plant in Rajasthan,
hence the costs associated with integration may be too huge

,/ )%7/-!6)$8=) "%/0 )%! 

Though backward integration maybe the most apt solution for Honda it may not be the
most feasible one.

There are alternatives to backward integration that may provide some of the benefits with
fewer drawbacks. The following are a few of those alternatives for relationships between
vertically-related organizations:

Ä? Long-term explicit contracts

Ä? Franchise agreements
Ä? Joint ventures
Ä? Co-location of facilities
Ä? Implicit contract (relying on firm͛s reputation)

Honda already uses a few of these methods suggested.