OEM-supplier working relations just 'average,' says new study

  • 14-May-2012 12:00 EDT
BigSixWRI.jpg

PPI's annual North American Automotive-Tier 1 Supplier Working Relations Index compares the U.S. and Japanese automakers' working relations with their suppliers. The Internet-based study had anonymous and confidential input from 439 Tier 1s.


OEMs that have the best working relations with their supply base tend to see suppliers' newest technologies sooner than those with poor supplier interactions, according to the 2012 North American Automotive-Tier 1 Supplier Working Relations Index (WRI) Study compiled by Planning Perspectives Inc. (PPI) of Birmingham, MI.

The annual study, released May 14, also reported that while General Motors and Chrysler improved to their highest supplier-relations levels yet, Toyota and Honda dropped to their lowest levels in 11 years. 

“The principle reason is that in the economic downturn of 2008-2009, Toyota and Honda lost their way and instead of focusing on working more closely with suppliers, they became a bit more adversarial. Thus from a relative basis, this change in behavior was the beginning of the drop in the level of their working relations,” PPI President and CEO Dr. John W. Henke Jr. told AEI

Henke also is a marketing professor at Oakland University in Rochester, MI. His company has been conducting the widely respected annual supplier study for 12 years.

Purchasing negotiations are key influence

According to Henke, the working relations for suppliers and automakers are heavily influenced by what happens during purchasing negotiations. In the 2012 study, 439 Tier 1 suppliers ranked the purchasing groups of Chrysler, Ford, GM, Honda, Nissan, and Toyota.

Even though suppliers still rank Toyota first and Honda second overall, the three Japan-based (including Nissan) OEMs, along with the Detroit Three, are converging in the low "Adequate" range, essentially earning from suppliers the equivalent of a "C" grade. Study results also show that 40% of the responding supplier companies rank Chrysler, GM, Ford, and Nissan in the "Poor" to "Very Poor" range.

“Purchasing leads the activities associated with supplier relations,” Henke explained. But he pointed out that how well supplier and OEM engineers work together can have a major impact on the ultimate relations of their companies.

“It is essential for engineering to align themselves with purchasing when it comes to working with suppliers. It becomes a behavioral issue for engineers," Henke said. "The right behavior can help improve overall supplier relations.

"For example, suppliers who work very intimately in the OEM’s product development process must be treated very differently from those who provide goods to the OEM on the basis of build-to-print,” he noted.

The impact on new-technology sharing

Product price remains a factor in many buy-and-sell situations. But Henke observed that price reductions “do not contribute to lower-rated supplier working relations. It is the manner in which the reductions are carried out that can contribute to lower relations,” he said.

While supplier-OEM relations might bend and waiver, suppliers are integral to every automaker’s business model.

Automakers lack the “internal capability to develop a competitive functioning vehicle,” according to Henke, and that makes suppliers an essential element to the overall vehicle development process.

“With 60% to 70% of every OEM’s revenues going to suppliers for parts and services, each OEM is heavily dependent upon suppliers for new technology. It is paramount that the engineering function contribute to creating an environment in which suppliers are more willing to share their new technology with the OEM’s engineers rather than the OEM’s competitors,” Henke said.

PPI began studying BMW, Mercedes-Benz, and Volkswagen in 2010, as all three have manufacturing operations in North America. However, the results relating to the three European-based automakers are not included in the 2012 study’s official WRI. According to Henke, this is because the data is not yet sufficient to reliably explain the trends and supplier-OEM relations relative to the U.S.-based and Japanese-based OEMs.

Henke points out that the three years of data from BMW, Mercedes-Benz, and VW does indicate “that they are facing the same issues in working with their suppliers as are the domestic and domestic Japanese OEMs.”

Share
HTML for Linking to Page
Page URL
Grade
Rate It
5.00 Avg. Rating

Read More Articles On

2016-11-13
Lengthy automotive development and production cycles have long prevented automakers and startups from working together. While that’s changed a bit, many young companies still find it difficult to work with OEMs.
2016-11-16
BWI is developing what it believes will be a cost-effective system that would improve ride quality at lower cost than employing magneto-rheological (MR) suspension units.
2016-12-04
Swamy Kotagiri will discuss how to foster an innovative organizational culture during a Leadership Summit roundtable, April 4 at the SAE WCX17 in Detroit. He spoke recently with Automotive Engineering on this topic at Magna’s Troy, MI, offices during the company's annual Innovation Awards activity.
2016-11-29
While Donald Trump was blasting China for allegedly taking U.S. jobs, GM was quietly importing new China-made vehicles into the U.S.

Related Items

Technical Paper / Journal Article
2010-10-25
Technical Paper / Journal Article
2010-09-28
Standard
1987-02-01
Article
2017-03-17