Toyota and Honda’s relationships with suppliers have slipped while Chrysler, General Motors and Ford have improved, the latest Planning Perspectives survey showed.
While still in first and second place overall respectively in this year’s rankings, Toyota and Honda – which had the highest scores in the study in the 2005-2007 period – have fallen this year to their worst scores in 11 years while Chrysler, GM and Ford have improved dramatically and as a group, have achieved their highest scores. Nissan’s rankings have also fallen during the same period but showed slight improvement this year; however, it could lose fourth place to GM or Chrysler next year if these companies continue their current trend lines. Only eight points separate the three.
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For 2012, Toyota and Honda still rank first and second overall, while Ford fell slightly but continues to lead the US automakers and remains in third place overall even though its improvement has been stalled for the last three years. Nissan showed slight improvement and is in fourth place while GM and Chrysler continue to improve and remain in fifth and sixth place respectively, the 12th Annual North American Automotive OEM-Tier 1 Supplier Working Relations Index Study found.
The study tracks supplier perceptions of working relations with their automaker customers in which they rank the OEMs across the six major purchasing areas broken down into 14 commodity areas. The results of the study are used to calculate the Working Relations Index. This year, 564 supplier personnel from 439 suppliers participated, representing 62% of the six automakers’ annual buy.
“It’s a concern that all of the automakers are ‘converging toward mediocrity’ in the overall low Adequate range in the Working Relations Index which is equivalent of a grade C in academia,” said John Henke, president of Planning Perspectives. Forty percent of suppliers still rank the Detroit 3 and Nissan in the “Poor – Very Poor” range. According to Henke, reasons include: much of the improvement of the US automakers has come by fixing some fundamental relations problems – what Henke calls the “low hanging fruit” – problems that are relatively easy to identify and rectify, such as Chrysler improving processes to quickly rectifying late payment issues.
There is still considerable performance variation among all OEMs’ purchasing areas except GM’s. For instance, this year Honda’s Electrical & Electronics group scored 328, while its Body-in-White group only scored 231.
“While automakers’ top purchasing executives understand and support positive working relations, many individual buyers who work for them apparently do not,” Planning Perspectives said.
“The costs to automakers of poor working relations are substantial, and the importance of good relations is significant and will only increase going forward with more automakers manufacturing more vehicles in North America, while competing for the same suppliers.
Over the years, the study has shown convincingly that automakers with Good-Very Good working relations get benefits such as suppliers more willing to invest in new technology, and more willing to share new technology with the OEM; more willing to support the automaker beyond contractual terms; are assigning their “A teams” in terms of OEM support personnel; are communicating more openly and honestly with the OEM and are willing to give greater price concessions to OEMs.
“However, in spite of their willingness to give greater price concessions, OEMs have to give up the idea they can expect 5% reduction annually,” said Henke.”That’s a race to the bottom and it will eventually destroy suppliers. The price of vehicles does not decrease 5% a year; if it did, automakers would go out of business. So why should the price of parts?”
The most important factor in improving supplier relations is consistency in managing the purchasing-engineering-quality interfacing activities. “The automakers must understand that maintaining supplier working relations is a never ending process; it’s dynamic, not static, and requires continuous attention,” said Henke.
“Decades ago, US automakers thought they were building the best vehicles possible – until the Japanese came here and suddenly everything changed. Automakers now expect 100% quality and are building the best vehicles they ever have.
“It is going to take that kind of focus and discipline to consistently achieve high levels of supplier relations – and the payoff will be just as valuable. Look at Chrysler’s performance during the Stallkamp days and where Toyota was only five years ago in the WRI ranking. It can be done – and Dan Knott did a remarkable job getting Chrysler turned around. However, the challenge for Chrysler, GM and Ford will be to continually improve how they are working with their suppliers in the coming years and not stall, or worse – fall back to their adversarial practices – something that suppliers are telling us more frequently is already happening.”
