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Progress stalls in automotive supplier relations

By: David Sedgwick
AUTOMOTIVE NEWS

May 13, 2013

DETROIT -- John Henke is a tough grader.

Henke, CEO of Planning Perspectives Inc. in suburban Detroit, says North America's six major automakers made zero progress improving relations with suppliers over the past year.

Henke, who released his annual study of 441 suppliers today, boiled his results down to informal letter grades for Automotive News.

Among the Big Six, Toyota and Honda, which traditionally enjoy the warmest relations with suppliers, both got a B. Ford got a C; and Nissan, General Motors and Chrysler all got a C- for their current relations with suppliers.

Among European automakers, BMW and Mercedes-Benz both got a B, while Volkswagen got a C-.

A skeptical Henke said: "All the top people in purchasing have been talking about how important supplier relations are. But it ain't happening. It just isn't happening."

The study, which is in its 13th year, used five basic metrics to generate an overall score -- dubbed the Working Relations Index -- for each automaker.

Those metrics were communications, profit opportunities, supplier relations, "help" (willingness to help suppliers cut costs and improve quality) and "hindrance" (late engineering changes, conflicts between engineers and purchasers, etc.).

Suppliers also judged automakers in six purchasing categories: powertrain, chassis, exterior, interior, body-in-white and electrical-electronics.

The overall scores for the Big Six automakers were bunched tightly together, a big change over the past decade, but with almost no change over the past year. They range from 297 for Toyota at the top of the list to 250 for Chrysler at the bottom.

In this year's study, Honda was the only automaker among the Big Six with a score -- which declined six points -- that shifted by a statistically significant amount.

BMW, Mercedes and Volkswagen were ranked separately because they were recently added to the survey. Hyundai and Kia were excluded because their sample size of suppliers was too small.

Toyota and Honda traditionally enjoyed the best supplier relations by a big margin, and Chrysler and GM were the worst by far.

In 2005, a 301-point chasm separated the best and worst. Then Toyota and Honda began to slide, while GM and Chrysler improved. Now, only a 47-point difference separates the best and worst performers among the Big Six, Toyota and Chrysler.

Now, none of the six big automakers is making much progress, leading to a mixed bag of pluses and minuses:

  •  Toyota and Honda were victimized by their rapid growth in North America. As both companies expanded their purchasing operations, new staffers failed to absorb the companies' culture of cooperation.
  •  Honda and Ford get their suppliers involved in product development earlier and more effectively than other automakers.
  • Toyota makes the fewest late engineering changes, a sign of disciplined product development. Chrysler makes the most, followed by GM.
  •  Suppliers are most willing to invest in new technology to win contracts with Ford and Toyota.
  • Chrysler's previous efforts to improve relations with suppliers "came to a screeching halt" after former purchasing chief Dan Knott died last year, Henke said. Knott was replaced by Scott Kunselman.

Despite Henke's tough grades, the automakers contacted last week did not dispute the accuracy of the results. Instead, they chose to look on the bright side.

Tony Brown, group vice president of Ford purchasing, said he is pleased that suppliers are willing to invest in new technology for Ford. "We are excited about this recognition," he said in a written statement.

Chrysler's Kunselman said his team was "pleased to see that our continued work to improve our operations ... is being felt by our suppliers, [but] we know we have a lot more work to do in the area of supplier relations."

In fact, Kunselman has taken some recent steps to improve supplier relations. Last November, he said Chrysler would involve key suppliers earlier in product-development projects and de-emphasize competitive bidding.

Several Chrysler assembly plants also are dispatching teams to key suppliers to help them upgrade productivity and quality.

Meanwhile, Toyota purchasing chief Bob Young said the automaker "will continue to use these results as a valuable learning opportunity to help improve our relationships and the way we conduct business."

GM purchasing chief Grace Lieblein said in a statement: "Improving supplier relationships is a top priority for GM and while we've made significant progress in the last several years, we know we have more work to do."

Automakers that enjoy the warmest relations with suppliers could have a big competitive advantage, Henke said.

As automakers strain to boost production, suppliers will invest in new technology and production only for automakers they view as good customers.

"Suppliers remember what happened in 2008, and they don't want to go through that again," Henke said. "There is no question that suppliers will choose who they will support, and it will be the automakers with whom they have the best relationships."

For more coverage on automotive suppliers and OEMs, see www.autonews.com.