“The continuing challenge facing automakers is very simple: They need to understand the difference between process improvement and work relations improvement. Some OEMs don’t understand this simple point. They think they’re working to improve relations when in fact, they’re working to improve business processes,” asserted Dr. John Henke Jr., President of Planning Perspectives Inc. (PPI). The Birmingham, MI-based company studies OEM-supplier relations.
In PPI's 2016 North American Automotive OEM-Tier 1 Supplier Working Relations Index (WRI) Study released May 16, suppliers evaluated and ranked their working relations with Fiat Chrysler Automobiles, Ford, GM, Honda, Nissan, and Toyota. The 2016 report findings were based on responses from 647 supplier personnel from 492 Tier One companies, representing 63% of the six OEMs' annual purchases.
Of those automakers, only GM notched significant improvement with a gain of 26 points from last year’s rankings. But GM’s improvement falls well short of being in the WRI’s Good-Very Good range.
“The only bright spot this year is GM," Dr. Henke told Automotive Engineering. "They improved significantly—back to the low Adequate status where [the company] was three years ago,” he noted. OEMs with good supplier communications and trusted working relations are apt to be offered novel solutions from the Tier Ones.
The benefits of OEM-supplier trust
Now in its 16th year, the annual PPI study shows the need for strong working relations and open, honest communications among automakers and suppliers. That point is underscored from a monetary perspective as OEMs typically spend 70- 80% of their revenue on the parts and materials provided by suppliers.
The 2016 study "shows clearly that OEMs and their engineering staffs with the best supplier relations are the benefactors of the best [services and technologies] suppliers have to offer,” said Dr. Henke, a professor emeritus of marketing at Oakland University in Rochester, MI and a research fellow at The Center for Supply Chain Management at Rutgers University.
Suppliers are more willing to share new technology and innovations with those OEMs with whom they have the most trusted, collaborative relations. "And they will do so without the assurance of a purchase order,” Dr. Henke said.
Suppliers with the best OEM working relations often assign their top performers to a project. “They’ll give OEMs their best engineers to work with—the best and the brightest. And everyone wants to know they’re working with the best people,” Dr. Henke said.
For decades, Toyota and Honda have maintained a stellar engineering-focused supplier-relations reputation.
“Their engineers work best with their purchasing organizations and their suppliers. The key factors that affect working relations are practiced quite well with these two automakers: open and honest communication, trust, willingness to work with suppliers to improve quality and reduce cost, and being mindful that suppliers have to make a profit,” according to Dr. Henke.
Toyota and Honda also have the most collaborative approach to pricing, because of the close-knit internal relations at these two OEMs with engineering, purchasing, and suppliers.
A positive-focused working relationship between purchasing and engineering is exceedingly relevant. “Ideally, you want both functions working together to arrive at the best solution at the best price. This is a more balanced and better approach because inherently everyone is involved,” explained Dr. Henke.