Toyota Sweeps Supplier Relations Rankings in Study; is "most preferred" customer
DETROIT, June 22, 2020 -- Results of the 20th annual North American Automotive OEM - Supplier Working Relations Index® (WRI®) Study released today by Plante Moran show that of the six major U.S. and Japanese automakers, only Toyota and FCA made any significant improvement in their scores this year.
Toyota gained nine points over its 2019 score and was the top performer in all 22 variables on the Working Relations Index®. FCA gained 10 points, but is still in a distant fifth place overall. Ford held steady with only a two-point gain. Honda dropped 18 points, GM fell 14 points, and Nissan was off by 8 points and fell to last place.
"With the unprecedented challenges now facing the automotive industry, the OEMs will be leaning more heavily than ever on their suppliers. The study shows that Toyota knows how to work most collaboratively with its suppliers, is well trusted, and therefore is well prepared to face these challenges," said Dave Andrea, Principal in Plante Moran's Strategy and Automotive & Mobility Consulting Practice, which conducted the study.
An eight-year comparison of the OEMs' performance provides additional insight. Toyota's practice of "continuous improvement" has paid off with a 49-point gain since its low point in 2012, while GM improved by 18 points, and Honda, 17 points. But, over the same eight-year period, Ford dropped three points, FCA fell 50 points, and Nissan was down by 66 points.
Since the Working Relations Index® was launched in 2002, Toyota has held first place every year except two – 2009, 2010 – when Honda temporarily took over first place.
The annual Study is conducted by Plante Moran and this year ran from mid-February to mid-April. Respondents represented 841 salespersons from 503 Tier-1 suppliers, representing about 60% of the six OEMs' annual buy.
The study is watched carefully by automakers because their supplier relations rating on the Working Relations Index® (WRI®) is highly correlated to the benefits that the OEM receives from its suppliers, including better pricing, more investment in innovation and technology, more sharing of technology, and better supplier support, all of which contribute to the OEM's operating profit and competitive strength. Two decades of Working Relations and profit-per-vehicle data back this up and show that strong working relations reduce the cost to OEMs of doing business, help improve efficiency and productivity, and reduce time to market.
"So far this year, the OEMs and their suppliers have gone through some of the toughest economic times in their history," said Andrea. "Operational and financial recovery will be a challenge for everyone. The OEMs' and auto suppliers' finances are stretched to the limit by the cost of restarting production and further threatened by slow sales and fluctuating market demands.
"This means that the OEMs will have to rely even more heavily on their suppliers, and trust, combined with open and honest communication and strong relationships, will be critical to their success. I think it's safe to say that those automakers who already have good relations will have an advantage over those with poor relations."
OEM-SUPPLIER TRUST AND COMMUNICATION IS KEY
The Study has shown the cornerstone of good working relations to be trust and communication, particularly important factors in the current uncertain business environment with billions of dollars and thousands of jobs at stake. Figure 2 shows how suppliers have ranked the six automakers in terms of trust over the past three years. The three-year average of Supplier Trust of OEM shows Toyota and Honda first and second, respectively; GM and Ford rank third and fourth with GM dropping significantly this year; FCA is in fifth place and Nissan, last. Communication is the other side of the same coin.
SUPPLIER BENEFITS vs TRUST & COMMUNICATION
The level of perceived Trust and Communication of OEMs by suppliers when dealing with their customers is directly correlated to benefits the OEMs receive from them. In the Figure 3 chart, note how the Supplier Benefits Index™ line closely tracks the bars for Trust and Communication bars when overlaid on them.
These two factors also play a major role in which OEM is a Preferred Customer and is the beneficiary of suppliers' investment in new technology, for instance (Fig. 4). Figure 5 shows that Toyota and GM are most preferred, with Honda and Ford tied. FCA is preferred over Nissan which is last.
PURCHASING AREA WRI®
The rankings in the overall WRI® provide high-level insight, but the study also delves deeply into OEMs' specific purchasing areas. By examining specific Purchasing Areas, management can determine where improvements are needed.
As shown in Table 1, Toyota ranks best in all seven purchasing areas that it was reported in; Ford was highest in EV & Hybrid, without Toyota or Honda. FCA and Nissan ranked lowest. (This year, two new purchasing areas were added: EV & Hybrid Powertrains, and Raw Materials.)
ENGINEERING PERFORMANCE IMPACTS SUPPLIER RELATIONS
"A number of years ago, the OEMs began breaking down the silos in the purchasing, engineering and product development areas to streamline them, improve communication between them and reduce cost and time to market," said Andrea. "So, in addition to providing management a window into purchasing performance, the WRI® provides managers the ability to see how effectively these three areas are working together."
For instance, the study asks suppliers to rank the OEMs on the extent of late or excessive engineering changes; whether the supplier is given enough flexibility to meet cost and quality objectives; whether suppliers are receiving conflicting engineering objectives; and if the supplier is involved early enough in OEM product development -- and kept involved throughout the process. All of these are critical issues to OEMs in order to reduce cost, improve quality, and speed time-to-market.
In two measures that capture much of the nuance around this type of friction – engineering causing unnecessary costs (Fig. 6), and purchasing and engineering having conflicting objectives (Fig. 7), – Toyota improved (reverse measure), while FCA remained the same, so it did not detract from its other improvements. Nissan improved, but not enough to offset its declines in other areas.
"These are critical questions that show how important it is that all OEM functions are aligned to take cost and time out of the entire supply chain to deliver not only the OEM's cost objective but help the suppliers' cost and financial performance as well."
"Focusing on improving supplier relations across purchasing, engineering and product development, is critical for the automakers right now," said Andrea. "Suppliers contribute 60-70 percent of the value of the vehicle, so it is clearly in the OEMs' best interest to set the goal of becoming the most preferred automaker to do business with – as Toyota obviously has."
For years, Toyota has led the industry in supplier relations. In fact, as Table 2 shows, Toyota was first in all categories this year and continues to improve. It's also the automaker that suppliers prefer to work with, and receives the benefits that go with that preference as well, said Andrea.
SUPPLEMENTAL INFORMATION: Full 18-year WRI graph is available.
About the Working Relations Index® Study: Now in its 20th year, the 2020 North American Automotive OEM-Tier 1 Supplier Working Relations Index® Study was conducted by Plante Moran from mid-February to mid-April. Respondents are salespersons from Tier-1 suppliers serving the Top 3 Detroit and Top 3 Japanese automakers. The annual study tracks supplier perceptions of working relations with their automaker customers in which they rate them across the eight major purchasing areas broken down into 20 commodity areas. The results of the study are used to calculate the WRI® which can then be used to calculate the economic value of working relations based on a proprietary economic model. Respondents represented 841 salespersons from 503 Tier-1 suppliers, representing about 60% of the six OEMs' annual buy. The sales personnel provided data on 2,752 buying situations (e.g., supplying brake systems to FCA US, tires to Toyota, seats to GM). Demographically, the supplier-respondents represent 45 of the Top 50 NA suppliers and 81 of the Top 100 NA suppliers. The study was founded in 2001 by Dr. John Henke, CEO of Planning Perspectives, Inc., and acquired by Plante Moran in 2019.
About Plante Moran: Recognized as a leader in automotive and mobility strategy, Plante Moran is among the nation's largest accounting, tax and consulting firms and provides a full line of services to organizations across many industry segments. In addition to automotive, Plante Moran has depth of expertise in manufacturing and distribution, private equity, Japanese-owned businesses, financial institutions, service, health care, public sector and real estate and construction. Headquartered in Southfield, Michigan, Plante Moran has a staff of more than 3,000 professionals throughout Colorado, Illinois, Michigan and Ohio with international offices in China, Mexico, India and Japan. Plante Moran has been recognized by several organizations, including FORTUNE magazine, as one of the country's best places to work. For more information, visit plantemoran.com.
SOURCE Plante Moran