Toyota Motor North America in Texas, Honda in California, and General Motors Co. in Detroit placed 1-2-3 in the 23rd annual North American Automotive OEM-Supplier Working Relations Index published today by Plante Moran in Southfield.
Toyota had a score of 338, Honda posted a score of 331, and GM came in with 297. Nissan was fourth with 225, Ford Motor Co. in Dearborn was next with 219 and Stellantis posted 145.
The Working Relations Index measures the total commercial relationship, which is a function of perceived trust, timely communication, mutual profit opportunity, assistance, and a reduction in friction in dealings with automakers.
According to Plante Moran, the results of the study show rising tension over increased risk related to short-term cost-recovery issues, production scheduling, and supply chain disruptions as the industry transitions to electric vehicles. These are compounded by long-term strategic issues suppliers have related to adequate insight into the automakers’ EV strategy and timing so they can effectively plan for the transition in terms of adequate capital, acquisitions, and staffing investment.
“The industry continues to face unprecedented challenges in the shift to EVs that unless effectively addressed will only get worse,” says Dave Andrea, principal in Plante Moran’s Strategy and Automotive and Mobility Consulting Practice, which conducts the study. “During COVID, a ‘war room’ approach was adopted to quickly resolve critical issues. That approach is what auto manufacturers need to maintain during the transition to EV technologies. The industry needs that level of collaboration, even without the pressure of a crisis.”
Overall, GM, Nissan, and Stellantis improved their WRI scores while Toyota and Honda dropped slightly, and Ford fell significantly. Stellantis showed the greatest improvement with a gain of 17 points, followed by GM’s 10-point gain and Nissan’s six-point uptick. Nissan took over fourth place from Ford which dropped 23 points — the largest drop by an OEM this year. Toyota lost seven points and Honda declined by three points.
With the industry undergoing major changes in the shift to EVs, suppliers identified several common issues critical to OEM success:
- There cannot be a disconnect between OEM senior management’s words and front-line buyers’ actions.
- OEMs need to ensure purchasing staffs have the experience and training to understand new EV technologies, and internal relationships to engage with engineering and manufacturing as the OEMs conduct staff reductions and reorganizations.
- OEM’s product plans and technology requirements need to be articulated and communicated to suppliers for suppliers to know where they and their products fit into long-term strategies.
- OEM decision-making locations need to be located near and reinforce where supplier sourcing and manufacturing occurs.
Plante Moran says the OEMs have improved their supplier relations by incorporating the Working Relations Index findings in their personnel performance metrics, corporate strategic planning processes, and communication strategies allowing them to better leverage their suppliers.
Strong supplier working relations are more than external relations with suppliers. An improving WRI reflects improved OEM cross-functional internal relations and indicates how well purchasing, engineering, and manufacturing are working together, the researchers say, a critical need to achieve faster product development.
Other takeaways include:
- New market conditions, such as supply chain disruptions and new technologies that change product plans and manufacturing strategies, require short- and long-term forecasts and production schedules to be more accurate and to be communicated in a more-timely fashion with suppliers.
- Cost recovery mechanisms should not be judged in isolation. Inflation-driven cost increases and adjustments need to be addressed in a timely manner that is consistent, tested, and institutionalized and supported by OEM and supplier cost reduction efforts.
- OEMs that effectively address these issues are generally stronger customers of choice for suppliers and rate them better on perceived trust, supplier business return on investment, and rewarding suppliers for high performance.
“The automakers will have to continue building on these fundamentals to survive near-term parts shortages, rising costs, and high risk to truly deepen supplier relations to support their transition to electric vehicles,” Andrea says.
