Toyota marks 12 straight years as the top performer in an annual study focused on OEM-supplier working relations. That consistency reflects the automaker’s engineering philosophy. “Toyota’s engineering perspective allows it to focus on creating realistic cost models, understanding the value of system performance requirements, and assisting suppliers with cost reduction efforts,” explained Dave Andrea, principal in Plante Moran’s Strategy and Automotive & Mobility Consulting Practice, about his firm’s 2022 North American Automotive OEM-Supplier Working Relations Study.

“Having a strong engineering capability enables Toyota to remain tough on price but accommodating as to how the supplier achieves those price targets,” Andrea added. Using online responses from 673 salespersons collected mid-February to mid-April from 436 Tier 1 companies, the survey addressed suppliers’ perceptions of their working relations with Ford Motor Co., General Motors, Honda, Nissan, Stellantis, and Toyota. The 436 suppliers represent approximately 50% of the six OEMs’ annual North American purchases.

Now in its 22nd year, the WRI study was founded by Dr. John Henke of Planning Perspectives, Inc. and acquired by Plante Moran in 2019. The study is highly relevant to automakers because their supplier-relations rating strongly correlates to the benefits (including better pricing, more technology investment, greater technology sharing) that an OEM receives from its suppliers.

Industry headwinds
Honda and Nissan showed the most improvement year-over-year, a timeframe immersed in microchip shortages, COVID-19 workforce disruptions and logistics delays. “As suppliers and OEMs were dealing with so many simultaneous crises, the efficiency of the Honda organization took cost and friction out of the relationship,” Andrea observed. Nissan’s survey gains are attributed to tying purchasing and supplier relations to its Nissan Next corporate strategy that aligns the automaker’s Yokohama, Japan, headquarters operations with North American operations. That alignment “supports the increased perception suppliers have with Nissan in the three key components of trust - realistic expectations, accountability, and information sharing,” Andrea noted.

Stellantis had the biggest drop in 2022 and ranked at the bottom among the six automakers in the study. “It was due to organization restructuring and turnover, cost reduction pressures, and its introduction of new terms and conditions for suppliers,” noted Andrea. The automaker recently rescinded the 2022 terms, reverting to 2021 North American contractual terms. 

Industry headwinds and the transition from fuel-powered to electrified vehicles continues to underscore the need for stronger automaker-supplier working relations. “Toyota is known for risk mitigation planning and early-warning contingency plans. Those are possible because the suppliers offer complete and accurate information because they trust Toyota will use that information for these contingency plans and not in a retaliatory manner to reduce prices or move business,” Andrea said. 

The Japanese benchmark
One area of ongoing concern for suppliers, according to Andrea, is the sharing of price and other market risks. That concern becomes more of an issue as electrified vehicles rely on cobalt, lithium, nickel and other raw materials that are prone to both price and supply volatility. “Within a single OEM, there may be opportunities to look at material resale programs, like the industry has for steel and resins,” said Andrea.

Toyota topped the survey in five of eight purchasing areas, including EV and hybrid powertrain, electrical and electronics, and raw materials. “These are critical purchasing areas in sourcing the next-generation EV propulsion systems and critical components, such as for lightweighting,” said Andrea. He stressed that strong scores help secure the new innovation and new capacity needed to feed rapidly growing EV plans. 

Honda’s top ranking in purchasing effectiveness, which involves timely communication, resolving issues and buyer accessibility, is particularly important during a period of inflation and material scarcity. A strong ranking in purchasing effectiveness essentially allows an OEM’s and supplier’s time to focus on the design, engineering, and launch of future vehicles, according to Andrea. 

Automaker-supplier working relations can grow stronger with a perspective that doesn’t shortchange the role of engineering. “There are several advantages to having a ‘balanced mindset’ between purchasing and engineering,” Andrea noted. Having a balanced link between engineering and purchasing provides a check and balance that hardware and software pricing is performance-based, and dual engineering/purchasing thinking also works as a conduit for adding new ideas and new suppliers. “Engineering is a key enabler for cost reduction efforts, such as running validation tests for new materials,” said Andrea.