Automakers need to do a better job of working with suppliers to succeed in an increasingly competitive market, according to a new analysis.
The North American Automotive OEM-Supplier Working Relations Index Study from Planning Perspectives Inc., a Mississippi-based consulting firm, looked at six original equipment manufacturers and their working relationships with suppliers. None of the automakers received scores on the index that Planning Perspectives considers “good” or “very good.” At best they ranked “adequate” or even “poor” for their supplier relationship efforts.
"At a time of record profits when the automakers should be investing in building more collaborative relations with their suppliers, the major indicators of this year's study suggest this isn't happening," John Henke, president of Planning Perspectives, Inc., said in a statement.
Historically, Honda and Toyota have ranked the highest on the index. This year, while the two car makers maintained top spots, they both fell on the index compared with 2015. Toyota ranks highest with a score of 332, down from 336 in 2015. Honda has a score of 323 on the 2016 index, down from 330 last year.
General Motors and Ford were the only two out of six automakers on the supplier relationship index to improve in 2016. Ford has a score of 267 in 2016, up from 261 in 2015. GM received a 250 on the index, up from 224 in 2015. However, according to Planning Perspectives, GM’s improvement on the index is the only automaker worthy of note this year. Still, it sits in the “very poor” to “poor” range of the index, according to the report.
Buying Organization Commitments and Communication
The key to improving supplier relationships and building trust with suppliers is internal collaboration between purchasing vice presidents and buyers, the report pointed out. This collaboration is also something that contributed to GM’s improved supplier relationships in the last year. For other automakers, like FCA, the report said purchasing VPs seem to be working with suppliers to build trust, but buyers are not. A possible lack of communication in expectations from the higher level down to the buyers may be to blame, the report said.
"The Purchasing Area volatility, coupled with these less than rigorous efforts to build more trusting supplier relations suggests the automakers' purchasing executives may have taken their eye off the ball," Henke in a statement. "More needs to be done at every level by every Purchasing VP. For example, we know that investing in the training or retraining of Buyers – who are key in building collaborative working relations – works; that's how Toyota and Honda turned around their relations ranking in 2013."
Impact on Profits
Ultimately, supplier relationship management impacts an automaker’s profits. Car makers spend 70%–80% of their revenue on auto parts, components and materials from suppliers, the report stated. Seeking price reductions from suppliers can be useful but also detrimental to supplier relationships if addressed too aggressively, as demonstrated in recent years at Nissan. For automakers to face financial challenges in years ahead and remain competitive, the report stated, car makers need to work more closely with suppliers.
"Going forward, automakers will have to invest heavily in new resources and training programs to improve their working relations with suppliers because suppliers have a significant impact on an automaker's profits," Henke said. "Currently this investment isn't happening across the OEMs with sufficient focus."