Study: Domestics Gain Ground in Supplier Relations

Though Toyota and Honda still lead the way when it comes to working relations with suppliers, the Big 3 has narrowed the gap between its Japanese peers, according to a recent study from Planning Perspectives.

The company’s 2011 North American OEM-Tier One Supplier Working Relations Study examined the six U.S. and Japanese automakers by surveying suppliers about how they would rank the working relations they have with each of the OEMs.

Planning Perspectives took the results from the survey and employed 17 working relations variables to determine the Working Relations Index.

“The Working Relations Index is not a popularity measure,” emphasized John Henke Jr., president and chief executive office at Planning Perspectives and the study’s author.

“The respondents to the study are supplier sales personnel who have commercial responsibility for their OEM customers,” he continued. “Subsequently, the WRI measures how suppliers perceive their OEM customer works with them on a day-to-day basis. As we’ve seen in every industry in which we have done similar studies, suppliers act toward their customers as they perceive their customers are acting toward them.”

Toyota topped the list with an index score of 327, followed by Honda at 309. However, both of these OEMs have declined each year since 2007, with Toyota looking like it has “bottomed out," officials noted.

Conversely, Ford (271) has shown growth each year since 2007 and came in third overall, leading the Big 3. Coming in at No. 4 was Nissan, which “remains stuck in neutral.” Its score of 247 was down 2 points from last year.

Placing fifth and sixth, respectively, were General Motors (236) and Chrysler (221). Though finishing behind their counterparts, both of these automakers have shown improvement in each of the last three years.

“In the last several years the U.S. automakers, realizing that an adversarial approach to working with suppliers won’t work, have been working hard to work more collaboratively with their suppliers,” Henke noted

“Given their continuing improvement over the last two to three years, it appears that they have made the internal management changes necessary to change the way their buyers are working with suppliers. They have begun to realize the benefits of trusting supplier relations, which should cause them to work even harder to be better,” he added.

In fact, for each of the Big 3, the number of suppliers saying they have “very poor — poor” working relations has fallen since 2008. Meanwhile, during the same time period, each of the Big 3 has enjoyed more suppliers giving them “good — very good” ratings.

Conversely, Toyota and Honda have seen “roughly the opposite,” the study indicated. Nissan has improved modestly.

Moreover, Planning Perspectives cited four working relations categories where each of the domestics have improved greatly: OEM Communications, OEM Help, Supplier Profit Opportunity and Relationship.

Meanwhile, the Japanese companies have been relatively static in these categories since 2008.

Also, each of the Big 3 increased their ratings in the following commercial categories, while the Japanese companies have typically declined:

—OEM Rewarding High Performing Suppliers with New/Additional Business.
—OEM Covers Sunk Costs When Programs are Cancelled or Delayed.
—Concern for Supplier’s Profit Margin.

“Nevertheless, the traditional leaders — Toyota and Honda — continue to have the best supplier relations, still well ahead of the U.S. OEMs,” officials noted.

And it wasn’t all positive news for the Big 3.

In one category — OEM Trust — domestics are behind the Japanese, and this proves crucial in a few key aspects of business. Planning Perspectives gave the example of “respect for suppliers’ proprietary information and intellectual property such as patents and confidentiality of technical innovations,” noting that Toyota and Honda remain well ahead of the domestics.

Additionally, Toyota and Honda are also far in front of the Big 3 rivals when it comes to the “supplier’s willingness to share new technology without assurance of a purchase order,” the study indicated.

“With the continuing need for innovation and technological leadership on both the product side and manufacturing side, the financial and competitive value of ‘trust’ cannot be discounted,” said Henke.

“The U.S. automakers need to move toward mutually beneficial contracts that protect suppliers’ intellectual property a lot better than they’re doing,” he added. “If the Japanese automakers can do it, surely the U.S. automakers can do it.”

European Scores

Additionally, officials noted that while the “Big Three European” OEMs in North America (Volkswagen, Mercedes-Benz and BMW) were evaluated for the first time this year, their results were not in the “official” WRI because one year simply is not enough data.

That said, if these three were thrown into the mix, Mercedes-Benz would top the list. Toyota would be second, with BMW at No. 3 and Honda in fourth. Ford would claim the fifth spot, followed by VW, Nissan and GM, respectively. Chrysler would round out the list.

Impact on OEMs

Moving along, Planning Perspectives touched on how the relationships automakers have with suppliers can impact them. The company claims that the study has demonstrated for “many years” the gains that are given to top-scoring OEMs — particularly Toyota and Honda — from their suppliers.

Among these gains are lower costs, higher quality and supplier innovation

The company showed that with WRI increasing, so does supplier trust. Greater trust can lead to the automaker “becoming a more preferred customer,” which can concretely benefit the automaker.

“Suppliers are more willing to share new technology with Honda and Toyota than with GM and Chrysler,” the company shared. “In addition, suppliers are more willing to invest in new technology for Honda, Toyota and Ford than they are for Nissan, GM and Chrysler.”

Breakdown of Rankings

Continuing on, the study also delved into the rankings suppliers gave for the six major purchasing areas for each automaker. Interestingly, the study found that each purchasing area’s score showed great variance for each OEM.

This indicates “inconsistent management oversight of buyers,” officials explained.

Breaking it down, the lowest overall WRI ranking among all groups scattered throughout the six OEMs went to Chrysler’s Body-in-White group (193). This marked the third straight year this group has been given this distinction.

Conversely, the highest overall WRI among all the groups was Toyota’s Powertrain group (358).

Looking at just the Big 3, the top-scoring group was the Ford Electrical and Electronics group (289).

The company also provided the following table to illustrate the highest and lowest scoring purchasing areas for each OEM (with respective WRI scores in parenthesis):

“The shifting ranges of high versus low rankings of specific purchasing areas within each OEM over the past several years illustrate the internal challenges each OEM faces as it works toward improving its supplier relations,” Henke shared.

“All of our research across multiple industries shows that the OEM Buyer has a profound impact on supplier trust and the overall relationship. The changing high-low ranges, coupled with the annual changes in the high and low rated purchasing areas within each OEM, suggest the most reliable and effective way to improve supplier working relations is to work toward more consistent buyer behavior throughout the purchasing organization,” Henke noted.

He continued: “This is a major issue facing Toyota and Honda, which have been trending downward, and to a lesser extent Ford and Nissan, as each of these OEMs attempt to move its supplier working relations to higher levels."

Wrapping up the analysis, Henke noted: “There is no silver bullet that will bring about more collaborative, more trusting supplier relations. Such relations result from complex interactions of OEM-supplier activities.

"While the actions of both parties reinforce the trust each party has of the other, it is the actions of the OEM that are the primary determinants of the supplier working relations,” he concluded.