Annual OEM-Supplier Working Relations
Study From Planning Perspectives:
Domestic Big 3 Not Changing, Japanese Big
3 Keep Improving
Suppliers rank Toyota, Honda highest
BIRMINGHAM, Mich.,
May 12 -- It's no secret that vehicles made by the Japanese Big Three
automakers have ranked highest in quality and customer satisfaction for more
than a decade, and that the Japanese manufacturers continue gaining market
share while the domestic Big Three's
share slips.
But what hasn't been obvious until now is the role that an
automaker's relationship with its suppliers plays in this trend.
Results from the just-released 2003 North American
Automotive Tier 1 Supplier Study show that the domestic Big Three
and Japanese Big Three have fundamentally different approaches to working with their suppliers and
suggests that this difference could be a major factor in the consistently high
quality and competitive gains by the Japanese.
These results have now been ranked on a new industry index called
the "OEM-Supplier Working Relations Index (WRI)" that shows the Japanese automakers
consistently moving up the scale toward better relations, and the
The 2003 Index again shows Toyota and Honda
at the top with a ranking of 334 and 316 respectively, with GM at the bottom
with a ranking of 156 and Ford slightly better at 161 (see Table 1). The 2003 WRI shows that each of the Japanese Big Three
improved and are well above the industry mean, while Ford
and GM are below the industry mean and lost ground. Chrysler was also below
the industry mean but improved slightly this past year.
"It's important to note as well that the industry average
rose 7.4% over the two-year period driven by gains made by the Japanese Big Three,"
said John W. Henke, Jr., Ph.D., whose firm, Planning Perspectives, Inc. conducts the annual study on which the WRI is
based.
"This indicates that the Japanese OEMs
keep raising the bar in the area of supplier working relations and are
increasing the gap between themselves and the domestic Big Three."
Table
1. Overall
OEM - Supplier Working Relation
Index for 2002 and 2003.
OEM YEAR
2002-2003 Change
2002 2003
Toyota 311 334
7.4%
Honda 294 316
7.5%
Nissan 225 259
15.1%
Industry Mean 203
218 7.4%
Chrysler 171
177 3.5%
Ford 163 161
-1.2%
GM 157 156
-0.6%
According to the study, the domestic Big Three consistently do three things that tend to degrade their relationships with
suppliers and cause them to have a lower WRI rating: they alienate suppliers,
they don't involve suppliers in their business, and they don't look to
suppliers for support and help. The Japanese Big Three
do just the opposite.
"What is apparent is that the Japanese OEMs
are applying continuous improvement practices to their supplier working
relations just as they have done to their manufacturing processes, and as a
result they continue to win the cost-quality-technology race," said Henke.
The 2003 study involved analyzing OEM-supplier relations across
1,262 business situations and ranked the OEMs in
five areas that comprise 17 variables. Based on this analysis, the WRI for 2003
did not change for the domestic OEMs,
but improved for each of the Japanese Big Three.
Notably, the price reduction demands an OEM makes on
suppliers has minimal impact on the WRI. Rather, it is the total working
environment of the OEM that impacts the WRI.
"It's clear from comparing our 2002 and 2003 studies that the
domestic OEMs have done virtually nothing to change their working relations with suppliers
over the past two years, while the Japanese Big Three continue to improve. Both groups are reaping what they sow," said Henke.
"The domestic OEMs
have assumed that getting price reductions from their suppliers and having good
supplier working relations are mutually exclusive. Nothing could be further
from the truth. Honda and Toyota, and to some extent Nissan,
recognize that they can pressure their suppliers for considerable price
reductions and quality improvements and still have good supplier working
relations. It all comes down to how you work with people that determines
whether or not you get the best performance from them."
The affect of the different approaches of how the domestic Big Three
and the Japanese Big Three
work with their suppliers is more dramatic when individual product areas are
considered. For example, in the electrical area Toyota
is ranked highest with a WRI of 416, followed by Honda (317), Chrysler
(250), Nissan (240), GM (181) and Ford
(110).
"These disparities are also found across product areas within each OEM indicating
different approaches are being followed within the OEM in working with
suppliers. By comparing WRIs across product areas, OEM management will be able to determine if the results
are consistent with their expectations of behavior within their firm,"
said Henke, who also serves on the faculty of the School
of Business Administration at Oakland University.
The results of the survey also indicate why OEMs
with good supplier working relations gain a competitive advantage. "Over
the years, we have seen a consistent pattern that shows OEM behavior directly
affects supplier behavior. Our studies show that the further up the Index
an OEM moves, the more suppliers are willing to help the OEM. Suppliers will
share more technology with the OEM, are more willing to invest in new
technology in anticipation of business, and they will provide higher quality
goods and high levels of service to the OEM. The Japanese OEMs
clearly understand this and it's helping them gain competitive advantage and
market share," he said.
The survey found that Toyota and Honda continue
to set the standard for OEM-supplier working relationships -- as they have for
the past three years. Other important findings show:
* Suppliers continue to rank Toyota, Honda and Nissan
as the most trustworthy and they have continued to improve their ranking each
of the last past three years. Ford, GM and DaimlerChrysler
are ranked as the least trustworthy and have gotten less trustworthy since
2001.
* Suppliers are most willing to share technology with Honda, Nissan and Toyota
who continue to improve their position. Ford, DaimlerChrysler
and GM all rank lowest, with Ford and DaimlerChrysler losing ground.
* While all six OEMs
are making strong demands for price reductions, suppliers indicate they'll
reduce services to the domestic OEMs to
compensate for the price concessions they gave to them, while their service
levels to the foreign domestics will increase.
* Suppliers say Toyota continues to have the fewest late engineering changes, followed closely by Nissan
and Honda. Ford had the most late changes, closely followed by GM
and DaimlerChrysler.
* In terms of which OEM provides them the best opportunity to make
an acceptable profit margin on their business, suppliers rate Toyota
and Honda highest, followed by Nissan, DaimlerChrysler, Ford
and GM.
* Finally, Toyota and Honda tend to balance cost vs. quality when selecting suppliers and provide the
greatest amount of help to suppliers to achieve improved quality levels. Ford,
GM and DaimlerChrysler emphasize cost over quality by more than four times, while providing suppliers
the least help to reduce costs and improve quality.
"Given the domestic automakers' public comments about how much they value their
suppliers and how much they want to work together as partners, it's clear that
the domestic OEMs put cost at the top of the list -- well ahead of trustworthiness, partnership,
technology sharing, open and honest communication, and other factors that go
toward building long-term relationships. As we have seen, these factors
directly impact their competitiveness, sales and the bottom line," said Henke.
The supplier survey is conducted annually in February and March.
This year, it involved responses from 261 Tier 1
suppliers including 63 of the Top 100
and was based on 1262 buying situations. The participating suppliers' combined
sales represent 51% of the OEM's annual purchase of components.
About PPI
Since 1990, PPI has specialized in developing and implementing
in-depth surveys of suppliers for the automotive OEMs and Tier 1
suppliers. In 2001, PPI initiated its syndicated Annual North
American Automotive Tier 1 Supplier Study.
These studies have become benchmarks for the industry and 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
relationships with suppliers.