Plante Moran in Southfield released the results of its 19th annual North American Automotive OEM – Supplier Working Relations Index Study, which shows that the major U.S. and Japanese automakers are making limited progress in their supplier relations. The progress, however, is only incremental compared to the major industry transition underway.
Toyota, Honda, Ford, and Nissan showed a slight uptick in their working relations index (WRI). GM dropped slightly, and FCA fell to last place, continuing its downward trend since 2013. None of the six automakers’ gains or losses, however, were statistically significant on a year-over-year basis.
“Given the competitive pressures automakers are under and the exponential pressures they face in the future, the OEMs need to be laser-focused on improving their supplier relations in order to best leverage their supply base,” says Dave Andrea, principal of the strategy and automotive/mobility consulting practice at Plante Moran. “OEM purchasing has to become as much a strategic priority as engineering and product development are, and unless this happens, the OEMs won’t be able to deliver the electrified and autonomous vehicles and new mobility services they envision for the future.
“Without a concerted effort focused on improving supplier relations and suppliers’ long-term sustainability, OEM and supplier resources are likely to be over-extended. Add to these demands the potential for economic downturns, trade pressures, and other competitive pressures, and the challenge of running a profitable automotive business will be extremely difficult without the full support of an OEM’s suppliers.”
The study is watched by automakers because their supplier relations rating on the WRI is highly correlated to the benefits that the OEM receives from its suppliers, including more investment in innovation and technology, lower pricing, and better supplier support, all of which contribute to the OEMs’ operating profit and competitive strength.
Two decades of industry WRI and profit per vehicle data back this up and show that working relations are a strong indicator of profitability for the OEM and supplier alike. Strong working relations reduce the cost of doing business, improve efficiency and productivity, and reduce time to market.
Through the study, suppliers are asked to score automakers on 23 variables that fall into five areas: OEM-Supplier Relationship (trust), OEM Communication, OEM Help, OEM Hindrance, and Supplier Profit Opportunity.
Trust and communication are particularly important factors in uncertain times when vehicle programs are in flux and millions and dollars and thousands of jobs are at risk with supplier companies. The two components are directly correlated to benefits OEMs receive from their suppliers.
Toyota and Honda are the first and second when it comes to trust, followed by General Motors, Ford, FCA, and Nissan. The degree of corporate trust is built from many elements of the study, which measures everything from protection of intellectual property to the level of open and honest communication and fulfilling contractual commitments.
Suppliers support their OEM customers by price reductions on parts, as well as providing non-price benefits such as increased investment in new technology, greater sharing of new technology, and earlier and better supplier communication that helps avoid or resolve problems more quickly.
The Supplier Benefit Index tracks the degree to which OEMs are preferred customers. Toyota ranks in first, followed by Honda, Ford, GM, FCA, and Nissan.
The rankings in the overall WRI extend down to the automakers’ respective purchasing areas. Honda ranks best in four of the six purchasing areas, while Toyota takes the other two top places. FCA ranks lowest in five of the areas, and Nissan is the lowest in one. GM and Ford are above average in all six, and GM ranks higher than Honda in one.
The number of late of excessive engineering changes impacts a supplier’s contribution to the OEM in cost, quality, and time. Toyota was best at managing engineering changes in 2018, followed by Honda. In 2019, they’ve changed places. GM and Ford are ranked in the middle, and FCA US and Nissan are last.
OEMs also can hinder suppliers by creating conflicting objectives between the purchasing and engineering functions. Honda is ranked best in this regard, closely followed by Toyota, GM, and Ford.