In spite of greater demands from automotive OEMs to increase capacity, develop new technologies, and meet launch deadlines—which require collaborative efforts—a new study just released from Planning Perspectives Inc., (www.ppi1.com) shows that OEM-Supplier relationships don’t appear to be improving.
The 2013 North American Automotive –Tier 1 Supplier Working Relations Index Study, conducted by Planning Perspectives, shows “no meaningful change since last year, except Honda, whole supplier relations continue to slowly drop,” said the executive overview of the study. The annual study focuses primarily on General Motors, Ford, Chrysler, Toyota, Nissan and Honda because these six automakers comprise 77% of light vehicle sales in the U.S. The European 3 – VW, BMW and Mercedes-Benz – are reported separately.
“Given the challenges facing the automakers, to say this year’s results are disappointing would be an understatement,” said John W. Henke, Jr. PhD, president and CEO of Planning Perspectives Inc., Birmingham, MI.
The study shows that over the past decade, the playing field between the Japanese automakers (also known as foreign domestics) and the Detroit 3 has leveled. Historically, said the Summary, Toyota and Honda led the pack, setting the “standard” in the Working Relations Index (WRI) with Toyota scoring on top with 415 points. The worst, GM, scored 114, with 301 points separating them.
The results of the study are used to calculate the WRI based on five key areas that contribute to collaborative supplier relations: OEM Help, OEM Hindrance, OEM-Supplier Relationship, OEM Communication and Supply Profit Opportunity. These are broken down into 17 working relations variables. This year, 583 supplier personnel from 441 suppliers participated, representing 61% of the six automakers’ annual buy.
Since the recession in 2008, noted Henke, “the two Japanese pace-setters have fallen dramatically to the 280-300 range, while the Detroit 3 improved to the 250-270 range. Today only 47 points separates Toyota at the top, from Chrysler at the bottom.” Henke attributes this to the rapid growth of Toyota and Honda in the U.S., as “both companies had to dramatically grow their purchasing staffs in recent years, and it became impossible to maintain the much-heralded Japanese culture with the continuing influx of new employees.”
That growth in employees also contributed to “a considerable drop” in Help provided suppliers to reduce costs and improve quality. It also was responsible, Henke believes from the survey responses, for a lack of Communication with suppliers relative to the period 2004-2007. The profit opportunity for suppliers has also dropped in 2013-2013 with both companies, the report noted.
Consistency in managing the everyday purchasing-engineering-quality interfacing activities in a collaborative manner, said Henke. is the most important factor in improving supplier relations. “Maintaining good supplier working relations is a never-ending process; it’s dynamic, not static, and requires continuous attention,” he added in the Summary. “Purchasing management must make sure their buyers understand poor supplier relations costing the automaker money is unacceptable. The costs to automakers of poor working relations are substantial, and will only increase going forward.”
Over the past 13 years that PPI has conducted this study, it has shown “convincingly that automakers with Good-Very Good working relations realize considerable benefits.” Their suppliers are more willing to invest in new technology and share new technology with the OEM; are more willing to support the automaker beyond contractual terms; communicate more openly and honestly with the OEM; and give greater price concessions to OEMs.
Automakers that rate poor with regard to supplier relations typically received smaller price concessions and work harder to get them; are supported with less experienced supplier personnel; and typically are not among the first to get their suppliers’ best ideas and new technology.
For Toyota, whose score this year is virtually the same as 2012’s survey, suppliers indicate that the buyers have been less active in building trusting supplier relations each of the last several years. Honda, whose supplier relations continue to slowly drop according to the past few years’ surveys, and Ford, which came in third this year, are “leveraging the expertise of their suppliers more than the other OEMs in that they involve suppliers earlier and more effectively throughout their product development process than do the other OEMs.
As for the procurement department, the survey summary noted that there is still “considerable performance variation among all OEMs’ Purchasing Areas.” Last year, for example, “Ford’s Electrical & Electronics group was its worst performer at 239; this year it is best at 324, again suggesting unfocused efforts to improve supplier relations.”
Some suppliers provided some interesting “anecdotal” comments in the survey in which they said, “the Detroit 3 are slipping back into some of their pre-recession bad habits. ‘They seem to have forgotten the help we gave them during the 2008-2009 recession because they’re back to their old tricks.’"