Toyota is 'supplier-centric' when making decisions © Hector Retamal/Getty Images
Toyota is 'supplier-centric' when making decisions © Hector Retamal/Getty Images

How does Toyota stay number one for SRM?

Will Green is news editor of Supply Management
25 May 2021

A focus on the impact of procurement decisions on suppliers has kept Toyota at the top of an automotive SRM ranking.

Toyota is number one in the annual North American Automotive OEM Supplier Working Relations Index (WRI) from Plante Moran, followed by Honda and General Motors.

Dave Andrea, principal in Plante Moran’s Strategy and Automotive & Mobility Consulting Practice, said Toyota was “engineering and manufacturing-centric”.

He told SM Toyota’s procurement decisions “orient themselves to the best product out there in the most effective and efficient way”, which in turn helped the company to be “supplier-centric in their decisions”.

“When they make a decision, for example to delay a programme, they ask, ‘What will be the impact on the supply base?’” said Andrea.

He said suppliers were brought in “further upstream” in product development and senior executives were aligned to the supplier-centric model, which has helped keep Toyota at the top of the ranking for nine years.

“Year in year out you [suppliers] basically know what the customer is going to demand – expectations, information flow, accountability – those things add up to trust,” he told SM.

Andrea said this consistency was critical to carmakers as they grapple with seismic shifts taking place in the industry, such as the switch to electric vehicles, because suppliers would prioritise preferred customers for the latest technology. “Toyota are more consistent to deal with,” he said.

Andrea said the industry went through a “trial by fire” over the past year but four of the six manufacturers in the index had improved their scores, which would be critical to addressing ongoing challenges including the semiconductor shortage, the Covid-19 pandemic, and port disruption.

“The automakers will have to continue building on these fundamentals to survive near-term parts shortages like the scarcity of microchips, and truly deepen relations to support the development of electric vehicles and related technologies in-house or out-sourced, or through acquisitions or partnerships. These industry challenges put more pressure on purchasing organisations to respond and resolve issues more effectively,” he said.

Andrea said there was no “silver bullet” to improve a company’s index ranking, instead it was a matter of “making many small, incremental improvements to the foundational elements over time – such as paying invoices, and training knowlegeable buyers – and aligning top leadership and all functions to support value-add by the supply chain”.

He added: “Focusing on improving supplier relations across purchasing, engineering and product development is critical for the automakers right now and essential for competitive advantage in the future. Suppliers contribute 60-70% of the value of the vehicle, so it is clearly in the OEMs’ best interest to have these teams working collaboratively with their suppliers.”

The WRI ranking 2021 (2020):

1. Toyota (1)

2. Honda (2)

3. General Motors (3)

4. Ford (4)

5. Nissan (6)

6. Fiat Chrysler Automobiles/Stellantis (5)

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