Poor supplier relationship management costs US automakers $2 billion

Will Green is news editor of Supply Management
18 May 2015

Car manufacturers in the US could have earned $2 billion (£1.29 billion) extra profit by improving their relations with suppliers, according to a study.

The North American Automotive Tier 1 Supplier Working Relations Index (WRI) found Ford, General Motors (GM), Nissan and Fiat Chrysler Automobiles (FCA) would have earned between $144 (£93) and $285 (£184) more profit per vehicle if they matched the supplier relations of leaders Toyota and Honda.

The annual WRI, produced by Planning Perspectives and ranking the six main car firms serving the US, showed Toyota remained the best performing carmaker during 2014, following by Honda, Ford and Nissan, with FCA and GM in joint last place.

Toyota has been in first place since the study’s inception in 2002, except for 2009 and 2010 when Honda took the top spot.

For the first time the study has put a dollar value on suppliers’ “non-price benefits”, described as “those valuable actions and practices, which along with supplier price concessions make a substantial contribution to an OEM’s competitiveness”.

This illustrates how if the bottom four companies had improved their supplier relations during 2014 by the average improvement shown by Toyota and Honda, GM would have earned an extra $750 million (£479 million), FCA $661 million (£422 million), Nissan $261 million (£167 million) and Ford $354 million (£226 million).

John Henke, president and CEO of Planning Perspectives, said there were “enormous” competitive pressures in the marketplace, with costs being driven higher by pressures to improve fuel mileage, safety features and increased electronics.

“Over this past year what we saw was there was a lot of pressure to reduce prices,” he said. “In the Detroit three [Ford, GM and FCA] and Nissan, the buyers were getting more adversarial.

“Honda and Toyota are going back to the ‘Honda way’, the respect for the individual. The extra training those companies are putting in with their buyers is kicking in and that is reflected in their behaviours.”

Henke said the four trailing firms were “doing the right things at the top” but they need to do more and this has “got to be more consistent across more of the purchasing organisation than it has been in the past”.

The study also covered BMW and Volkswagen, who became part of the research in 2010, and in a chart including them BMW would take first place ahead of Toyota and VW would be in last place.

Henke said: “VW has been incredibly adversarial always. They continue to have the worst relations ever. They are one of the least successful financially when you look at profit per vehicle. A lot of that can be attributed to their adversarial relations.”

Henke recommended that supplier relationship management be included as part of the metrics used to evaluate buyers’ performance, but he said it was not just the responsibility of procurement departments. “It’s the responsibility of every part of the customer organisation that interfaces with the supplier organisation,” he said.

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