A posting on Supply & Demand Chain Executive highlights the results of the 14th annual North American Automotive Tier 1 Supplier Working Relations Index, which is an industry study on the major U.S. and Japanese automotive OEM’s relationships with suppliers. This annual study focuses primarily on OEM’s Chrysler, Ford, General Motors, Nissan, Honda and Toyota which currently comprise upwards of 80 percent of U.S. vehicle sales.
This ranking study is rather significant since it ranks purchasing top leadership, buyer behavior and transparency and other factors that lead to perceived positive supplier relationships.
The article highlights that both Toyota and Honda’s efforts to improve supplier innovation and relationships have, once again, gained the upper hand. Both OEM’s are ranked first and second respectively with Honda rated as “most preferred” customer among all OEM’s rated. Honda’s increase was reported to come primarily to improvements in three foundational key areas: supplier relationship, supplier communication, and supplier profit opportunity. “Honda is top-rated with Toyota in paying invoices on time and according to terms, as well as in resolving invoice payment issues. Honda is also tied with Toyota in allowing suppliers to recover material cost increases and in the confidential treatment of proprietary information and intellectual property.”
This author has personal consumer experience on the benefits of such supplier collaboration. Our household recently purchased the latest Honda Accord and it impressed and sold us with its array of on-board technology and driver improvements. Our purchase came after evaluating and test driving most all of the automotive premium brands.
Nissan was noted as second most improved, and took over the third place rating that previously was attributed to Ford Motor Company, which slipped to the fourth position. The article notes: “Significant improvement occurred due to suppliers being given greater flexibility in meeting piece price and tooling objectives, and in Nissan covering sunk costs when programs were delayed or cancelled. Nissan, however, is the least fair, along with Chrysler, in allocating chargebacks to suppliers, but its treatment of confidential proprietary information and intellectual property is significantly higher than Chrysler or GM.”
Of far more significance, General Motors has fallen into last place among the six U.S. and Japanese OEM’s ranked. According to the Supply & Demand Chain report: “The primary reasons for the drop are a decrease in supplier trust, in supplier communication and the amount of help GM provides (or doesn’t provide) to suppliers to reduce cost and improve quality. GM is ranked lowest in protecting suppliers’ intellectual property and proprietary information. GM is also the least likely to allow recovery of material cost increases. As a result, GM is now the least preferred customer of suppliers, in spite of the efforts of the purchasing VP to improve, an example of good leadership, but poor execution by buyers who interface with suppliers on a daily basis.”
In the light of the current blitz of product recalls emanating from General Motors, 29 at last count involving upwards of 15.4 million vehicles, Supply Chain Matters could not help but conclude that the current supplier ranking at the GM recall crisis do not make for a positive mix right now, when supplier responsiveness is the most crucial.
The article further notes that if German auto brands were added to the study, BMW would likely be ranked second overall, while Mercedes would be well below Volkswagen and General Motors. That seemed even more profound.
This study’s authors noted the overall results of this recent supplier relationship survey as history repeating itself. U.S. OEM’s, under new purchasing leadership, made previous significant improvements in supplier relationships, only to once-again, fall back to prior levels. Chrysler’s deterioration has come under the leadership of Fiat, which has aspirations to increase its North American and global presence.
By our lens, the overall takeaway from this latest survey is that core standards that value suppliers in foundational and innovation focused elements remain as differentiators while old ways and practices of beating up suppliers often persist, even after an industry crisis would have provided a motivation to change.