There's a mix of good news and bad news in the 12th-annual North American Automotive OEM-Tier 1 Supplier Working Relations Index, which tracks suppliers' perceptions of their working relationships with the major automotive OEMs.
On the positive side, General Motors Co. (IW 500/5), Ford Motor Co. (IW 500/6) and Chrysler Group LLC collectively achieved their highest scores since Planning Perspectives Inc. first launched the index, with GM and Chrysler making strong year-over-year improvements.
"They have just been doing the things that need to be done to improve their relations," John Henke, president of Birmingham, Mich.-based Planning Perspectives and a professor at Oakland (Mich.) University, said of GM and Chrysler.
Chrysler's supplier relations could hit a speed bump in the short term, Henke said, after highly respected former purchasing chief Dan Knott succumbed to cancer in April. However, Knott's successor, Scott Kunselman, should keep Chrysler heading in the right direction, Henke added.
"I don't know [Kunselman], but the people I've talked to at Chrysler say he's just like Dan," Henke said.
Ford continues to lead the Detroit Three on the supplier-relations index, although the automaker's score slipped from 271 to 267 year-over-year.
Toyota Motor Corp. (IW 1000/5) and Honda Motor Corp. (IW 1000/23) have ranked first and second every year since the launch of the supplier-relations index, and 2012 is no exception. Toyota ranks first with a score of 296, followed by Honda with 293.
However, both automakers posted double-digit declines in their scores, continuing a trend that dates back to 2007.
"To be perfectly frank, I was absolutely flabbergasted when I got the data," Henke said of Toyota and Honda. "Because I reasonably expected -- in fact last year I told people -- that worst-case they'll be flat, and best-case they'll move up again."
While Henke again said he expects the two automakers to improve in next year's index, he acknowledges that the combination of the recent recession and last year's natural disasters in Japan and Thailand has been a powerful one-two punch.
"The tsunami had a tremendous impact, because it caused both of these companies to spend an inordinate amount of time just trying to keep production going, and they couldn't worry about relations -- they just had to keep the production going," Henke said.
Meanwhile, Nissan Motor Co. (IW 1000/29) has made some modest gains under Rebecca Vest, Renault-Nissan's vice president for North American purchasing, Henke pointed out.
Nissan ranks fourth in this year's supplier-relations index, with a score of 256, up from 247 last year.
A Race to the Bottom?
The Working Relations Index ranks OEMs across the six major purchasing areas -- body-in-white; chassis; electronics and electrical; exterior; interior; and powertrain -- based on 17 variables.
Planning Perspectives divides the 17 variables into five categories: relationship; OEM communication; OEM help; OEM hindrance; and supplier profit opportunity.
For the 2012 index, 564 personnel from 439 Tier 1 suppliers participated in the survey, according to Planning Perspectives.
The survey respondents gave the OEMs high marks for their communication, with all six major automakers making year-over-year improvements. When asked to rank the automakers on their "transparency when providing information needed to meet OEM needs," the suppliers gave GM, Ford, Chrysler, Toyota and Honda scores of 4 or higher (consider "great"), and Nissan a score of 3.7.
Henke noted that most of the automakers are communicating with their suppliers more than they ever have.
"Certainly one thing that has taken place, particularly on the domestic side, is that they are forecasting their schedules with much more accuracy," Henke said. "And if not accuracy, they're at least saying that the schedule is fixed, and that they're not going to change things within a two- or four-week period, depending on who the OEM is.
"And so suppliers don't have to be concerned that Monday morning they may get a call saying that by the end of Friday they have to double their production by 20% or something like that."
Despite strides in categories such as communication, Henke still sees enough evidence -- including the overall decline of Toyota and Honda -- to worry that all of the OEMs are "converging toward mediocrity."
The overall scores of all six OEMs are in the low end of what Planning Perspectives considers to be the "adequate" range, while 40% of suppliers still rank the Detroit Three and Nissan in the "poor-very poor" range of working relations.
"The automakers must understand that maintaining supplier working relations is a never-ending process," Henke said. "It's dynamic, not static, and requires continuous attention."
As Knott's turnaround of Chrysler's supplier relations attests, it can be done, Henke added.
"However, the challenge for Chrysler, GM and Ford will be to continually improve how they are working with their suppliers in the coming years and not stall, or worse -- fall back to their adversarial practices -- something that suppliers are telling us more frequently is already happening."
Among other findings of the 2012 Working Relations Index, according to Planning Perspectives:
- Much of the improvement by the Detroit Three has come by fixing some fundamental relations problems -- the "low-hanging fruit," as Henke put it -- that are relatively easy to identify and rectify, such as Chrysler improving processes to quickly rectifying late-payment issues.
- There is still considerable performance variation among all OEMs' purchasing areas, except GM's. For instance, Honda's electrical and electronics group scored 328, while its body-in-white group only scored 231.
- Implementation of the Working Relations variables year-to-year is inconsistent within each OEM. For example, if GM had maintained its ranking in the "Help" category this year, it probably would have surpassed Nissan and Ford in its overall ranking.
- While automakers' top purchasing executives understand and support positive working relations, many individual buyers who work for them apparently do not.
Regarding the last point, Henke said the automakers need to implement "behavior metrics" that evaluate all purchasing personnel on supplier relations.
"Having good relations is the responsibility of anybody who interfaces with a supplier, regardless of what their function is," Henke said, "and they have to act accordingly."