Toyota was the only manufacturer to buck the trend and see an improvement in SRM ©Toyota PLC
Toyota was the only manufacturer to buck the trend and see an improvement in SRM ©Toyota PLC

Supplier relations worsen in automotive sector

posted by Francis Churchill
14 May 2018

Supplier relations have worsened in five car manufacturers operating in the US, an SRM survey has found.

Out of a total of six companies assessed, Toyota was the only manufacturer to see an improvement in its supplier relations, albeit a small one.

John Henke, president of Planning Perspectives, which produces the survey, told SM firms had “taken their eye off the ball”. He said there was no single overarching cause behind the industry-wide tempering of relations, but pointed to instances of poor communication, declining trust and inequitable dispute resolutions.

The North American Automotive OEM-Supplier Working Relations Index (WRI) ranked Toyota highest, followed by Honda, GM, Ford, Fiat Chrysler Automobiles (FCA) and Nissan.

The index is based of a survey of 649 individual sales representatives from 500 tier one suppliers, asking them about their interactions with OEMs during specific buying situations, and it is conducted in partnership with the OEMs.

The survey results do not include BMW, Mercedes and VW because Planning Perspectives does not collect the same level of data from these OEMs’ suppliers.

Nissan continued a “dramatic” four-year decline and scored an all-time low. Ford also hit a nine-year low, while GM dipped slightly after two years of steep growth.

Honda maintained a comfortable second place despite its third consecutive year of decline.

Speaking to SM, Henke said: “It seems to us is that people have taken their eye off the ball when it comes to supplier relations in their company. Perhaps they’ve pushed it down in the level of importance to the company, when in reality it’s really very important from an economic standpoint.”

He estimated, for example, GM’s three-point drop on the index equated to a reduction of supplier contribution to profit of $167 per vehicle, adding up to a loss of $400m over 2.47m vehicles. “Our data shows suppliers contribute about 60% to the profit, on average, of North American OEMs,” he said.

Commenting on Nissan’s continued decline, Henke said pressure from top management to maintain or improve profits had likely led to a squeeze on suppliers. However, he added price pressure itself had little direct impact on supplier relations.

“If you go back and look at all the behaviours that would be associated with applying pressure, in particular in Nissan and FCA, they’re not treating the supplier as value. They’re not treating the supplier, when they have issues, in a fair manner or an equitable manner. It’s the behaviour that’s associated with the pressure, not the pressure itself.”

He added that Toyota and GM were both applying “a good amount of pressure” to their suppliers without hurting their relationships in the same way.

Toyota and Honda “have always had a very positive attitude to suppliers”, said Henke, in part because both firms take a “supplier for life” attitude. They are also strong proponents of target costing in procurement, where they approach suppliers with a price point in mind which they then work with suppliers to achieve.

Henke said the rise of electric vehicles was having “literally no impact” on supplier relations, and automation was still a few years off from having an impact.

Henke predicted that this year’s poor results would likely act as a call to arms and there was a good chance next year the general trend would be an upwards one. “They will be trying to figure out what’s going on and they will be making some profound changes.”

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