The turmoil in the automotive industry was reflected in the results of this year’s Planning Perspectives annual study of the automakers’ supplier working relations, with the most significant shift in the suppliers’ ratings of the auto manufacturers since the study was launched eight years ago.
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The annual North American OEM – Tier 1 Supplier Working Relations Study tracks the supplier relations of the top 3 US and top 3 Japanese automakers.
Honda took over the top spot held by Toyota since 2002, though both companies were ranked somewhat lower this year. Toyota, which has had the best supplier working relations of any company, in any industry, for years, has dropped steadily for the past two years.
At the same time Ford, which only two years ago was rated as having the worst working relations with suppliers, has made dramatic and steady gains for the past two years. This year, Ford had the highest rating ever achieved by a US automaker in the study and was closing in on Nissan, which was in third place. Among the Japanese automakers, Honda was the most preferred foreign domestic customer, while Ford was the most preferred domestic automaker customer.
General Motors showed some improvement after a slight downturn last year, but remained well behind Ford.
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By GlobalDataChrysler was last in supplier working relations, virtually the same position as last year – a dramatic decline since it was the top rated US automaker in 2006.
“We have been tracking supplier relations since 1992, during which time Toyota has been clearly the industry leader in supplier relations,” said Planning Perspectives president and CEO John Henke.
“Toyota supplier relations have lost significant ground in the last two years and it has slipped out of first place in our study – a position it held since we started measuring the supplier working relations of the six automakers in 2002 with our Working Relations Index. Suppliers suggested a potential reason for this drop was a younger, less experienced staff in Toyota’s purchasing group for whom the ‘Toyota Way’ is not yet the way of doing things.”
“With respect to Ford, two years ago the company transferred the head of European purchasing to the US to be head of Ford North America purchasing. The results have been a dramatic improvement in supplier working relations last year and this year,” Henke said.
“In fact, Ford’s working relations with suppliers are the highest they have been since 2001, now ranking just below Nissan. While Ford still has a lot of work to do, what they’re doing with their suppliers is working. The number of suppliers that say they have ‘good to very good’ relations with Ford increased by 50% this year, while the number of suppliers indicating they have ‘poor to very poor’ working relations with Ford is down by 25 percent. Ford is clearly headed in the right direction.”
The Working Relations Index represents the suppliers’ rating of their working relations with each of the six major North American automotive OEMs. The WRI consists of 17 variables comprising five components that are the principal drivers of supplier working relations. The components include OEM communication with suppliers, OEM help given to suppliers to reduce costs, and the supplier’s profit opportunity at the OEM.
Of the six automakers, the domestic OEMs have been on the bottom half of the scale since 2002 when the WRI was first used, while the foreign domestic automakers have continually been on the top half with Toyota and Honda having the highest WRI ratings of the automakers.
For the second year Chrysler ranked at the bottom of the six North American OEMs with a WRI of 162, virtually the same position as last year. After dropping 11 points last year, GM advanced 20 points this year to 183.
In terms of percentage change, the Toyota and Chrysler WRIs dropped 18% in the last two years, while Ford’s WRI gained 43%.
Nissan remained in third place, while improving 15 points this year, after a drop of 36 points in 2008. Ford was close behind Nissan and could, at the rate it is improving, pass Nissan next year.
Favorable supplier rankings of the automakers have a very real impact on the OEMs’ future fortunes. For many years, the study has consistently shown that automakers with the best rankings, specifically Toyota and Honda, received the greatest benefit from their suppliers in a variety of areas including lower costs, higher quality, and innovation.
As the WRI increases, the OEM becomes a more preferred customer, and their suppliers reciprocate with equivalent behaviours, which results in greater benefits for the OEM.
Suppliers are much more willing to share new technology with Honda and Toyota than with the other OEMs. In addition, suppliers are more willing to invest in more new technology that benefits Ford and Nissan than they are willing to do for Chrysler or GM.
