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

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

PR Newswire

DETROIT, May 13, 2013

DETROIT, May 13, 2013 /PRNewswire/ -- 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, the OEMs should be
redoubling their efforts to develop more collaborative supplier relations in
order to leverage their combined resources. However, that doesn't appear to
be the case, according to the results of the 2013 North American Automotive -
Tier 1 Supplier Working Relations Index^® Study, conducted by Planning
Perspectives, Inc.

The annual study focuses primarily on General Motors, Ford, Chrysler, Toyota,
Nissan and Honda because these six automakers comprise 77 percent of light
vehicle sales in the U.S. The European 3 – VW, BMW and Mercedes-Benz – are
reported separately.

Results of this year's study show no meaningful change since last year, except
Honda, whose supplier relations continue to slowly drop.

"Given the challenges facing the automakers, to say this year's results are
disappointing would be an understatement," said John W. Henke, Jr., Ph.D.,
president and CEO of Planning Perspectives, Inc., Birmingham, MI,
(www.ppi1.com)whose firm conducts the annual study.

While still in first and second place respectively in this year's overall
Working Relations Index (WRI^®) rankings, Toyota's score is virtually the same
as last year with a gain of only one point, while Honda lost six points and
has continued its downward slide to its worst score since the study began.
Ford remains comfortably in third place, followed by Nissan, neither of whom
has shown sustained improvement for four years. 

General Motors remains unchanged and in fifth place followed by Chrysler, who
managed to pick up two points, but remains in sixth place.

"It's apparent that while the automakers' top purchasing executives generally
understand and support positive working relations, this support has not been
translated into a consistent action plan for improvement. The lack of
improvement among these automakers' purchasing areas over the past several
years suggests that none of them has implemented a well-defined, focused plan
to improve their supplier working relations. Or, if they have such a plan, it
is not being implemented at the level of day-to-day contact with suppliers.
Either way, this is not good for the OEMs or the suppliers," says Henke.

WRI Rankings of the Detroit 3 and Japanese 3 automakers are virtually
unchanged for 2013, except for Honda which slid six points.

(Photo: http://photos.prnewswire.com/prnh/20130513/DE11669-INFO-a )

Historically, Toyota and Honda set the standard for the study. From 2004 –
2007 they performed well above the rest of the industry with overall WRI
scores in the 350-415 point range.

Back then, the top-rated automaker, Toyota, scored 415 and the worst, GM,
scored 114, with 301 points separating them. Since the recession in 2008, the
two Japanese pace-setters have fallen dramatically to the 280-300 range, while
the Detroit 3 improved to the 250-270 range. Today only 47 points separates
Toyota at the top, from Chrysler at the bottom.

According to the Henke, there are several reasons for Toyota's and Honda's
fall, and the current stagnation of the other OEMs. Among them:

  oWith the rapid growth of Toyota and Honda in the U.S., both companies had
    to dramatically grow their purchasing staffs in recent years, and it
    became impossible to maintain the much-heralded Japanese culture with the
    continuing influx of new employees.
  oFor both Honda and Toyota, ironically, the growth in personnel in the past
    two years has been associated with a considerable drop in Help provided
    suppliers to reduce costs and improve quality, and in Communication with
    suppliers relative to 2004-2007. The profit opportunity for suppliers has
    also dropped in 2012-2013 for suppliers at both companies.
  oFor Toyota, suppliers indicate that the Buyers have been less active in
    building trusting supplier relations each of the last several years.
  oHonda and Ford are leveraging the expertise of their suppliers more than
    the other OEMs in that they involve suppliers earlier and more effectively
    through-out their product development process than do the other OEMs.
    However, Ford, Chrysler, GM and Nissan have the least disciplined
    engineering function in that they have had significantly more
    excessive/late engineering changes than Toyota for the last several years.
  oChrysler and GM for the past two years, and Ford and Nissan for the past
    four years have shown little change in virtually all WRI–related measures
    suggesting unfocused efforts to improve supplier relations.
  oThere 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.



Table 1. Inconsistencies Across Purchasing Areas are Costing the OEMs


OEM               Highest Ranked           Lowest Ranked           WRI Range
                  Purchasing Area    WRI   Purchasing Area   WRI
Toyota            Interior           302   Body-in-White     271   52
Honda             Exterior           300   Body-in-White     253   47
Ford              Electrical &       324   Body-in-White     249   75
                  Electronics
Nissan            Exterior           279   Electrical &      225   54
                                           Electronics
General Motors    Electrical &       287   Interior          229   58
                  Electronics
Chrysler          Interior           282   Body-in-White     220   62


Table 1 above shows that inconsistent performance among automakers' Purchasing
Areas year-over-year is costing them in the WRI rankings. For instance, this
year Ford's Electrical & Electronics group is its highest rated; last year, it
was Ford's lowest rated.

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. One supplier commented: "They seem to have forgotten the help we
gave them during the 2008-2009 recession because they're back to their old
tricks."

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 everyday purchasing-engineering-quality interfacing activities in
a collaborative manner, said Henke.

"Maintaining good supplier working relations is a never ending process; it's
dynamic, not static, and requires continuous attention. 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, said Henke.

"We are in one of the most capital intensive periods the automotive industry
has ever known. 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. No
automaker has the resources to go it alone, particularly when it is realized
that each spends about 60 – 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 has shown convincingly that automakers with
Good-Very Good working relations realize considerable benefits. Their
suppliers:

  oAre 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)
  oAre more willing to support the automaker beyond contractual terms
  oCommunicate more openly and honestly with the OEM
  oGive greater price concessions to OEMs.

Whereas, automakers with poor relations:

  oReceive smaller price concessions and must work harder to get them
  oSupport the OEM with less experienced supplier personnel
  oTypically are not among the first to get their suppliers' best ideas and
    new technology



^1 Five point scale;  TABLE 2:

^2 Six point scale    2013 Consequence or Benefit to OEMs
Supplier              Chrysler    GM      Nissan    Ford    Honda    Toyota
Willing to Share New  2.74        2.68    2.81      2.88    3.11     3.04
Tech w/o PO^1
Willingness to Invest 3.30        3.41    3.36      3.64    3.53     3.58
in New Tech^1
Preferred Customer^2  3.64        3.83    3.65      4.15    4.10     4.11
Working Relations     250         251     256       271     287      297
Index (WRI)


The higher the Working Relations Index ranking, the more benefits accrue to
automakers such as more sharing of technology and investing in 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. Some broad supplier relation trends are identifiable and interesting.

For instance, since 2010, BWM, after dropping for two years has improved this
past year to lead all OEMs, including the Detroit 3 and the Japanese 3, with a
WRI of 324.

Mercedes and Volkswagen, however, continue to slide in the rankings with
Mercedes now trailing Toyota with a WRI^® of 289 and VW trailing all OEMs with
a WRI of 231. Interestingly, the WRI rankings for the two Volkswagen
operations -- VW-Puebla and VW-Chattanooga -- are 241 and 216, a 25 point
difference.

The increase at BMW has resulted from a mix of changes, i.e., increases and
decreases in rankings, across the WRI^® components. The BMW WRI increase came
about because of improvements in the Hindrance and Communication components,
which offset reductions in the Help, Relationship, and Profit Opportunity
components.

The WRI decreases for Mercedes and VW have occurred because of reductions in
the Help, Communication, Relationship, and Profit Opportunity components,
which were greater than an increase in the Hindrance component.

If the Japanese 3, the Detroit 3 and European 3 were combined on a
consolidated WRI graph as below, BMW would rank highest of the nine automakers
and VW the lowest.

(Photo: http://photos.prnewswire.com/prnh/20130513/DE11669-INFO-b )

About The Study: Now in its 13^th year, the Annual North American Automotive
OEM-Tier 1 Supplier Working Relations Index^® Study determines the supplier
working relations in numerous areas at the Detroit 3 (GM, Ford and Chrysler)
and the Japanese 3 (Toyota, Honda and Nissan). This year, 583 sales persons
from 441 Tier 1 suppliers – representing 1,844 buying situations (e.g.,
supplying brake systems to Chrysler, tires to Toyota, seats to GM) and 61% of
the OEMs' annual buy – responded to the survey. Demographically, the
supplier-respondents represent 38 of the Top 50 North American suppliers, 67
of the Top 100 North American suppliers. The study culminates in the Working
Relations Index (WRI^®) which is a quantitative ranking by suppliers of their
working relations with each of the X OEMs. For the last three years, VW, BMW,
Mercedes Benz have also been included.

About PPI: Since 1990, PPI has specialized in developing and implementing
in-depth surveys of suppliers for the automotive OEMs and Tier 1 suppliers,
and companies in numerous other service and manufacturing industries
worldwide, including the aircraft engines, computer, construction tools,
electronics, energy, and food industries. In 2001, PPI initiated its
syndicated annual North American Automotive OEM - Supplier Working Relations
Study. This annual study has been recognized as the benchmark of supplier
working relations for the automotive industry in the Harvard Business Review
and several books. The Studies provide critical sales and financial planning
information for suppliers and their sales, marketing, and financial staffs, as
well as a means by which OEMs and their purchasing staffs can get a reality
check on their working relations with suppliers. John W. Henke, Jr., Ph.D. is
president of Planning Perspectives, Inc., and a Professor of Marketing at
Oakland University in Rochester, MI. PPI is based in Birmingham, Michigan USA
and can be reached at +1.248.644.7690. Visit PPI at www.ppi1.com.

SOURCE Planning Perspectives, Inc.

Website: http://www.ppi1.com
Contact: Mike Hedge, Hedge & Company, Inc., 248-789-8976 (cell),
mhedge@hedgeco.com