Top U.S. and Japanese automakers are losing out on hundreds of millions of dollars in potential cost savings due to mediocre relationships with their parts suppliers, according to a new report. That’s because four out of the six automakers operating manufacturing plants in North America experienced erosion in their supplier rapport over the past year, the Supplier Working Relations Index notes.
The report is based on a survey of automotive suppliers by company-supplier relations research firm Planning Perspectives Inc. (PPI). To measure how Ford, GM, Fiat Chrysler Automobiles (FCA), Nissan, Toyota and Honda stack up on their relationships with suppliers, the firm polled 647 salespeople from 492 Tier 1 suppliers representing 38 of the top 50 North American suppliers. It is the 16th year the company has conducted the survey.
Creating a good relationship between automakers and parts suppliers has always been difficult. On the one hand, automakers need cost concessions from key suppliers to help their bottom line, but they also need the latest technologies, which cost more to produce. Meanwhile, suppliers are under pressure to maximize profit so they can then invest back in the business.
“Given their financial performance, this is the time when automakers should be investing in building more collaborative relationships with their suppliers, but the major indicators of this year’s study suggest this isn’t happening,” says John Henke, president of PPI. “We have said time and time again, that automakers benefit when they work with suppliers, which is important because a market downturn is going to make it tougher for OEMs who don’t have suppliers on their side.”
Toyota and Honda remain the top two automakers on the index, with scores of 332 and 323, respectively. The highest possible score is 500. Ford follows at 267, but Henke calls its 6-point improvement disappointing compared with the 26-point jump for rival GM, which posted a score of 250. Most notable is that Nissan fell 19 points to 225—putting it close to tying the 222 of last-place FCA. Although FCA has improved many of its internal processes, Henke says they still lag behind those of its competitors.
GM was the only automaker to record a significant gain. That improvement, Henke says, resulted in suppliers contributing more than $3,000 to the profit GM realized on every vehicle manufactured and sold in North America last year. The figure is based on price concessions and other non-price benefits, such as being first to receive new technology offerings.
What’s interesting is the aspect of preparing for a market downturn. That would normally result in more pricing pressure on suppliers, but Henke says it is OEMs with the worst relationship scores that will suffer. The data shows that automakers applying the most pressure on price actually get the least when it comes to cost givebacks, he says.
Consider, for example, the case of GM. With its improved performance, GM drew better price concessions from suppliers than it did a year ago, according to the study. At the other end of the spectrum, Nissan, which Henke says threatened to pull business back if a supplier didn’t agree to its demands, actually saw price concessions erode year over year.
“Nissan became adversarial…and suppliers…gave them less,” Henke explains in a WardsAuto article.
What are your thoughts on supplier relationship management? What benefits do you see from fostering collaborative relationships?