Toyota ranks as the top performer among the six major U.S. and Japanese automakers in all scorecard categories of an annual study focused on the OEM-supplier working relationship. “Toyota blends two critical elements together: They are engineering-centric for product and manufacturing processes, and they are supplier-centric,” explained Dave Andrea, principal in Plante Moran’s Strategy and Automotive & Mobility Consulting Practice, about his firm’s 2020 North American Automotive OEM - Supplier Working Relations Index (WRI) study.
“So, for every change – whether that relates to where a vehicle is produced in their global footprint, or a platform, or component-set consolidation – the supply base implications are factored into the equation.” Based on online responses collected mid-February to mid-April from 841 salespersons representing 503 Tier 1 companies, the survey addresses suppliers’ perceptions of their working relations with automakers Fiat Chrysler Automobiles US, Ford Motor Company, General Motors, Honda, Nissan and Toyota. Those six OEMs account for approximately 60% of the annual buy from the Tier 1 suppliers.
The WRI study, now in its 20th year, was founded in 2001 by Dr. John Henke of Planning Perspectives, Inc. It was acquired by Plante Moran in 2019. Compared to the 2019 study’s findings, the 2020 report shows Toyota notching the top spot in the five WRI areas that address purchasing, engineering, and other OEM-supplier interactions. “The study shows that Toyota knows how to work most collaboratively with its suppliers,” Andrea noted. Toyota, Ford and FCA gained points in this year’s study, while Honda, GM and Nissan had scores drop versus 2019.
“Both Toyota and Nissan showed an improvement in the alignment between purchasing and engineering, yet these two companies are at the top and the bottom, respectively, of the WRI. Nissan’s improvement wasn’t enough to offset its declines in other areas,” he said. Andrea is former senior VP and chief economist at the Original Equipment Suppliers Association (OESA) where his duties included overseeing various industry benchmarking surveys.
Two decades of WRI and profit-per-vehicle data show that strong OEM-supplier working relations correlate to a variety of automaker benefits, including better supplier pricing and increased technology investment. Working relations are especially relevant in 2020, as the COVID-19 pandemic has prompted the weeks-long closure of factory plants and the temporary shuttering of engineering centers around the world.
A real issue for suppliers is knowing how the timing of future programs has changed and how development priorities should change. “The last thing a supplier needs in a cash-strapped environment is to strand capital in a program that is not moving forward,” Andrea said. The pandemic also puts logistics in danger of becoming the weakest link in the production value chain. Driver shortages, especially for smaller firms, are a constant worry.
“The other issue is that with production schedules being especially volatile as assembly shifts return, suppliers need their logistics support to be equally flexible,” said Andrea, noting the alternative solution is banking extra inventory. Engineers could deal with more than the usual number of deadline and/or design-freeze changes as the pandemic runs its timeline.
“Toyota has improved their position on excessive and late engineering changes, but it should be noted that this was an area that Toyota had backpaddled on in the 2019 study,” explained Andrea. Nissan, FCA, GM and Honda also received better ratings in late or excessive engineering change orders in the 2020 study. Ford and FCA are involving suppliers earlier in the product development process, a statistically significant improvement in 2020 versus 2018.
“Minimizing engineering changes and maximizing engineering alignment with purchasing allows suppliers to optimize designs, material selections and testing regiments to minimize costs and improve project management timelines,” Andrea said.Continue reading »