2013 Annual OEM-Supplier Report Study Shows Automakers’ Lack of Focus has Stalled Improvements in Supplier Relations

Confronted with greater demands than ever to make major investments in global facilities and in new technologies to achieve much higher corporate average fuel mileage goals, OEMs should be redoubling their efforts to develop more collaborative supplier...


  • Chrysler and GM for the past two years, and Ford and Nissan for the past four years showed little change in virtually all WRI–related measures suggesting unfocused efforts to improve supplier relations.
  • There is still considerable performance variation among all OEMs’ Purchasing Areas. For instance, this year Ford’s Electrical & Electronics group scored 324, while its Body-in-White group only scored 249—a 75-point spread (see Table 1 below). It’s noteworthy that last year Ford’s Electrical & Electronics group was its worst performer at 239; this year it is best at 324, again suggesting unfocused efforts to improve supplier relations.

 

Further, many suppliers provided anecdotal comments in the study in which they said that the Detroit 3 are slipping back into some of their pre-recession bad habits.

“They seem to have forgotten the help we gave them during the 2008-2009 recession because they’re back to their old tricks,” referenced one supplier in the study.

The annual 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 six purchasing areas are powertrain; chassis; exterior; interior; electrical & electronics; and body-in-white.

The results of the study are used to calculate the WRI based on five key areas that contribute to collaborative supplier relations: OEM Help, OEM Hindrance, OEM-Supplier Relationship, OEM Communication and Supplier Profit Opportunity. These areas, in turn, are further broken down into 17 working relations variables. This year, 583 supplier personnel from 441 suppliers participated, representing 61 percent of the six automakers’ annual buy.

Supplier relations improve with consistency

The most important factor in improving supplier relations is consistency in managing the

Every-day purchasing-engineering-quality interfacing activities in a collaborative manner, added

Henke.

“Maintaining good supplier working relations is a never ending process; it’s dynamic, not static and requires continuous attention,” he said. “Purchasing management must make sure their Buyers understand poor supplier relations is costing the automaker money and is unacceptable.”

Poor supplier relations impacts the bottom line

The costs to automakers of poor working relations are substantial, and will only increase going forward, Henke confirmed.

“We are in one of the most capital intensive periods the automotive industry has ever known,” he said. “New fuel economy standards, powertrains and fuels; global environmental requirements; global expansion; and increasing global competition are all placing enormous financial and human resource demands on automakers and their suppliers.”

“These pressures are further exacerbated by the large number of new product launches each OEM has in the pipeline for the next several years,” said Henke. “No automaker has the resources to go it alone, particularly when it is realized that each spends about 60 to 70 percent of its revenue on suppliers. If an automaker doesn’t work in a more collaborative manner with its suppliers, they’ll never realize the full competitive and financial benefits of good supplier relations, and at worst they’ll fail.”

Over the years, the study showed that automakers with Good-Very Good working relations realize considerable benefits. Their suppliers:

  • Are more willing to invest in new technology to meet future OEM needs, and are more willing to share new technology with the OEM (see Table 2)
  • Are more willing to support the automaker beyond contractual terms
  • Communicate more openly and honestly with the OEM
  • Give greater price concessions to OEMs.

 

Whereas, automakers with poor relations:

  • Receive smaller price concessions and must work harder to get them
  • Support the OEM with less experienced supplier personnel
  • Typically are not among the first to get their suppliers’ best ideas and new technology

 

The European big three

In 2010, Planning Perspectives began studying the Big Three German automakers with manufacturing operations in North America: Volkswagen, Mercedes-Benz and BMW. Since 2010, BWM, after dropping for two years, improved this past year to lead all OEMs, including the Detroit 3 and the Japanese 3, with a WRI of 324.

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