Car companies have often led the way in developing innovative purchasing techniques. Given the value and complexity of a typical OEM’s purchasing, which involves thousands of dollars and thousands of components for an average passenger car, this is hardly surprising. Honda America Manufacturing is no exception, spending $3.5 billion on parts each year to produce more than 500,000 Civics and Accords.

The effectiveness of Honda’s purchasing is evident from its success in the highly competitive US market, where its locally built cars have won a 5.2 percent market share only 12 years after startup. (Vehicles imported from Canada and Japan add a further 3.4 percent share.) Honda achieves its success by implementing a wide range of purchasing best practices.

Five fundamental areas

Honda performs well all the main sourcing tasks that any company faces, but it has made particular strides in five key areas. The theme of its success in each one is "making it look easy" by investing resources to make both its own and its suppliers’ lives less difficult. It tackles purchasing effectiveness first, knowing that efficiency will then follow, rather than rushing to squeeze efficiency out of the system at the expense of long-term overall effectiveness....