U.S. Automakers Gain Ground in Latest Supplier-Relations Index

When it comes to relations with their suppliers, the U.S. automakers are moving in the right direction.

That's the conclusion of the 11th annual OEM-Supplier Working Relations Index, produced by Birmingham, Mich.-based Planning Perspectives Inc. The index attempts to quantify the working relations between the six major North American OEMs and their suppliers, based on a survey with Tier 1 suppliers. "I think one thing certainly is very clear: The domestic automobile OEMs are improving their relations rather substantially and have over the last several years," said John Henke, president and CEO of Planning Perspectives and author of the study. For the fourth straight year, Ford ranked first among the Detroit Three on the supplier-relations index. Ford's 271 score puts the automaker in the "adequate" category, according to the index.

Henke: It's clear that GM, Ford and Chrysler are improving their supplier relations "rather substantially."
Among the Detroit Three, General Motors ranked second, while Chrysler ranked third. Overall, they ranked next to last and last, respectively. At GM, which improved its score from 183 in the 2009 index to 236 in this year's index, Henke sees a new post-bankruptcy attitude helping the automaker mend fences with its supply base. "The bankruptcy generally caused them to take a more practical view that they're no longer the biggest corporation in the world, and that they can no longer make demands of their supply base without penalty," Henke told IndustryWeek. "And it caused them to be a bit more contrite." Henke also pointed to longtime GM employee Bob Socia, who was appointed the automaker's purchasing chief in July 2009, and, in general, the enthusiasm of the GM employees who survived the restructuring, as factors that have made a difference in GM's supplier relations and that will help GM push its supplier-relations score "even higher in the coming years." At Chrysler, which improved its score from 187 in the 2010 index to 221 this year, Henke noted that purchasing chief Dan Knott "feels very strongly about good [supplier] relations." Knott's "right-hand man," Sigmund Huber, spent nine years working for Toyota and consequently "knows how to bring about supplier relations," Henke added. Henke believes the bump in Chrysler's score reflects the company taking care of "low-hanging fruit" such as addressing longstanding supplier grievances. "The enthusiasm is there, the attitude is there, the leadership is there," Henke said. "There's every reason to believe their improvements are going to continue over the next several years also." However, to put it in perspective, Chrysler and GM's scores still rank in the "poor" category, according to the supplier-relations index. "They're moving in the right direction, but there's still a long way to go," Henke said. Has Toyota Bottomed Out? Overall, Toyota regained the top spot after slipping to second behind Honda in 2009 and 2010. Toyota's score dropped from 330 in the 2010 index to 327 this year, but Honda knocked itself out of the No. 1 spot with a 31-point drop. Ford ranked third overall. Prior to 2009, Toyota held the No. 1 ranking for seven straight years. While Henke asserted that Toyota in recent years has lost sight of the "fundamentals of the Toyota Way," he said the automaker likely has bottomed out. "I think they've learned," Henke said. "They certainly have been working hard to turn around, and I suspect we will see that bear fruit soon." For the first time, Planning Perspectives included the Big Three European automakers -- Volkswagen, Mercedes-Benz and BMW -- in the survey, although their scores were not factored into the official index. "I think next year it's going to be a little bit better, because we'll get an idea of what their relations are over a two-year period," Henke said. "Certainly the third year we're going to have a very good idea." Interestingly, if the Big Three European OEMs had been factored into this year's index, Mercedes-Benz would have ranked first among all nine automakers. More Important Than Ever With the release of every supplier-relations index, Planning Perspectives emphasizes that automakers with higher scores reap benefits such as higher quality, lower prices and technology sharing compared with automakers that post lower scores. If production ramps up later in the year -- as some are predicting -- the stakes will be even higher, Henke asserted. In 2009, North American vehicle production plummeted to 8.76 million units, according to data from WardsAuto.com. North American production increased to 12.15 million units in 2010, and there are murmurs that by the fourth quarter of this year, production could reach an annual rate of 15 million to 16 million vehicles. If it plays out like that, suppliers -- many of which cut to the bone during the recession -- could be hard-pressed to meet the uptick in demand. With financing still hard to come by for some suppliers, Henke believes there are a combination of factors that could "really put the onus on the OEMs to treat their suppliers well." "That behooves the OEMs to make sure they're the customer of choice, that they get what they need," Henke said. "And those who are not necessarily the customer of choice may not get quite what they need." 2011 OEM-Supplier Working Relations Index