Study: Big Three supplier relationships struggle
Relationships between Detroit’s three automakers and their suppliers continue to deteriorate, and a new study says it’s costing the car companies hundreds of millions of dollars.
The 15th annual Automotive OEM (original equipment manufacturer)-Supplier Working Relations Index Study from Birmingham-based Planning Perspectives Inc. found that scores for Ford Motor Co., General Motors Co. and FCA US LLC are at their lowest point in at least three years as they continue to trail their Japanese counterparts. Ford was able to move into the third-highest spot — behind Toyota Motor Corp. and Honda Motor Co. — but that’s only because Nissan Motor Co.’s score fell farther (10.6 percent) than Ford’s (2 percent).
For the first time, the study put a dollar figure on what good supplier relations mean to automakers’ profits. If the relationships were better — that is, if automakers better communicated with suppliers, trusted them more and worked with them to reduce costs — Ford, GM and Chrysler would have added roughly a combined $1.7 billion to their 2014 profits.
The study’s author, John Henke, used a formula to determine that if Ford’s score increased as much as Toyota and Honda, the Dearborn automaker would have added more than $354 million. FCA, Fiat Chrysler, would have earned an additional $661 million and GM would have earned more than $750 million. The scores are determined after interviewing hundreds of suppliers on a number of areas related to communication, help, trust and other factors.
The dead-last finish for GM may be most troubling, since the Detroit automaker has made improved relations with its suppliers a priority. The company works with more than 20,000 global suppliers and annually buys about $90 billion a year in materials. Its score dropped 8.5 percent from last year.
In September, GM launched an initiative called Supplying Communities Together to bring together teams of GM and supplier employees to work on community projects.
Steve Kiefer, GM’s vice president for global purchasing and supply chain since late 2014, ranked third behind Toyota and Honda in building trusting supplier relations. But the study revealed pressure on GM suppliers to reduce cost, improve quality and introduce more innovation has increased significantly, with GM buyers becoming more adversarial in going after supplier price reductions.
“At GM we take relationships with our business partners very seriously,” Kiefer said in a statement. “With any study, we are always interested in relevant feedback to strengthen our supplier relations and improve our underlying business performance. While there is more work to do, we have set clear objectives and implemented tools to achieve mutual business goals while building strong relationships between GM and our supplier partners.”
Ford’s score fell 2 percent from last year, and the number of suppliers with good relations with Ford has dropped for the third straight year to a low of 24 percent. Ford’s purchasing chief is tied for last place with FCA’s in building trusting relations.
“We are pleased Ford is the top domestic automaker in the Planning Perspectives study, and we’ll build on this strong foundation,” the automaker said in a statement. “We will continue to use the elements of our Aligned Business Framework — communication, collaboration, transparency and trust — to ensure our suppliers make Ford their customer of choice. Together, we’ll continue implementing our One Ford plan and driving innovation.”
FCA’s score fell 8.5 percent from last year, and all business practices that build good supplier relations continue to decrease. FCA’s purchasing chief is tied with Ford’s in last place for building trusting relations, while FCA’s buyers are dead last in virtually all measured areas. On-time payments and resolution of payment issues at FCA remain lowest among the six original equipment manufacturers, the study found.
Communication has improved slightly, but FCA help to reduce cost/improve quality has decreased, while hindrance and opportunity to make a profit have increased.
“They have some real, real challenges,” Henke said.
Tom Finelli, vice president of purchasing and supplier quality for FCA North America, said in a statement that FCA places “tremendous value” on supplier relationships.
“We are not happy with this year’s survey results and agree we have significant progress to make,” he said. “We have recently reorganized to focus on supplier relations globally, which should help us, among other things, drive consistent behaviors across our regions as well as throughout all levels of the organization.”
If the German automakers were included in the study, BMW would place first overall and Volkswagen would finish last.
Henke said companies like Toyota and Honda “clearly understand the value of strong supplier relations,” while scores for the Detroit automakers remain low for a number of factors.
“They just have huge organizations and they have to get the message down to everybody,” Henke said. “They have to get some behavioral measures in place that’s going to cause the buyers to act the way they want.”