While Nissan and FCA US have been bottom-ranked for several years, neither is close to the historical lowest ranking. General Motors claimed the all-time low score of 114 in 2005, the same year that Toyota soared with the all-time high score of 415. (PPI)
OEM sourcing trends show more program discipline needed
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The drive by OEMs to get the best parts price is always in play, yet an industry study finds no correlation between an automaker’s pricing pressure and good OEM-supplier working relations.
“The demand for a price reduction does not in itself create poor relations. It is how that demand is implemented. That’s why some suppliers are now taking their best technology to OEMs other than Nissan and FCA US,” Planning Perspective Inc.’s (PPI) president John Henke said, referencing the analysis of nearly 30,000 buying situations.
Automotive Engineering interviewed Henke about the results from PPI’s 18th annual North American Automotive OEM-Supplier Working Relations Index Study. Scores are based on information provided by 496 Tier-1 suppliers, representing 62% of the annual buy from FCA US, Ford Motor Company, General Motors, Honda, Nissan, and Toyota.
The 2018 study found that five of six vehicle makers doing business in North America were pinged with depressed scores. Finishing in last place, Nissan notched its lowest score since the study began in 2002. FCA US landed in fifth place with its lowest ranking in eight years.
Ford’s 4th place finish was its lowest showing in nine years.Third place General Motors ended its two-year streak of upward scores. Honda finished in second with a third year of declining scores. First place finisher Toyota was the lone automaker to improve its 2017 score.
Low scores have significant cost repercussions. For instance, if GM had maintained its 2017 study ranking rather than drop three points, the automaker would have netted an additional $167 for every light-duty passenger vehicle it assembles and sells in North America. PPI’s proprietary economic model puts GM’s predicted loss total, based on 2.4 million vehicles, at more than $400 million.
“Often the best way to convince a business executive that something needs his or her attention is to show convincingly how much money they’re losing, or could potentially gain by making something a management priority,” Henke noted.
In third quarter 2018, PPI will release results of its multi-year study on the financial impact of supplier working relations for each of the six automakers.
“We know from our 18 years of studying the auto industry that suppliers are responsible for nearly 60% of an OEM’s profit, and the value of their contributions goes up or down depending on the the OEM’s Working Relations Index ranking,” Henke said.
The most significant study shift in the last five years is that several OEMs have realized the importance of good supplier relations. “However, their programs need more management oversight and discipline. There’s still too much variation year-to-year,” Henke said. He added that the biggest change within an OEM’s organization is better cooperation and involvement between purchasing, engineering, and the supplier.