Study: Maintaining good supplier relationships pay off for carmakers

David Sedgwick
AUTOMOTIVE NEWS

Published: August 6, 2014 10:06 am ET
Updated: August 18, 2014 9:31 am ET

John Henke

Related to this story

Topics United States, Automotive
Companies & Associations Ford Motor Co., General Motors Co., Honda Motor Co. Ltd., Nissan Motor Corp., Toyota Motor Corp.

TRAVERSE CITY, MICH. — What is it worth for an automaker to have good relations with its suppliers?

For Honda and Toyota, quite a lot, according to a study published Aug. 5 by researcher John Henke.

Henke, who does an annual survey of supplier relations of major automakers in North America, even took a whack at quantifying the contribution suppliers made to automakers’ profits.

For Honda Motor Co. Ltd, a close working relationship with suppliers boosted its profits by $3,185 per vehicle sold from 2008 through 2013, according to the new study.

Suppliers boosted Toyota Motor Corp.’s profits by $2,390 per vehicle and Nissan Motor Co. Ltd.’s by $2,165. Ford Motor Corp. gained $1,968 per vehicle, and General Motors Co. got $1,675 per unit.

At the bottom of Henke’s list of six automakers studied was Chrysler Group LLC, which generated supplier profits of $1,504 per vehicle.

While Honda and Toyota fared relatively well, Henke concluded that all six automakers could fatten their profits if they place a higher priority on good relations with their suppliers.

“All of the major automakers could be making hundreds of millions dollars more annually if they focused more on improving their supplier relations,” Henke said in his report.

The new survey is an outgrowth of Henke’s annual supplier relations survey, which his consulting firm, Birmingham-based Planning Perspectives Inc., published in May.

So how did Henke quantify suppliers’ contributions to automakers’ profits?

He started with each automaker’s gross profit per vehicle, as noted in their financial reports, and then subtracted major costs, such as manufacturing, parts, research and development, and administrative expenses.

The remaining profit, he deduced, could be attributed to the contributions of a supplier. Then Henke took one additional step: He deducted the price cuts that suppliers granted to their customers.

After deducting those price cuts, Henke dubbed the remaining profit the automaker’s “non-price benefits” produced by suppliers.

Non-price benefits might include a supplier’s commitment to share its best technology, or a vendor’s quicker time to market with a new product, or a supplier’s decision to assign its best executives to a particular customer’s project.

One other nuance: Henke did not include results for GM and Chrysler in 2009, when both companies declared bankruptcy.

Henke’s key takeaway: The automaker’s financial gain that can be attributed to a supplier’s price cuts are dwarfed by the supplier’s non-price benefits.

For example, Henke estimates that Toyota gained $144 per vehicle from supplier price cuts, compared with $2,390 per vehicle from non-price benefits.

Henke concludes: “While adversarial tactics, such as beating up suppliers for lower prices, work in the short term, they don’t offer nearly the benefit in the long term that improving supplier relations does.”

Several automakers reacted cautiously to the report, neither endorsing nor disputing the results. One spokesperson called the survey “an interesting exercise.”

Said Chrysler purchasing chief Scott Kunselman: “We intend to stay focused on building strong, efficient and innovative partnerships with our suppliers.”


Comments

Study: Maintaining good supplier relationships pay off for carmakers

David Sedgwick
AUTOMOTIVE NEWS

Published: August 6, 2014 10:06 am ET
Updated: August 18, 2014 9:31 am ET

Post Your Comments


Back to story


More stories

Ford shrinks its supplier 'watch list'

October 20, 2014 1:35 pm ET

Ford purchasing chief Hau Thai-Tang says suppliers are starting to invest in additional production capacity because they think the recovery is real.    More

Image

Material Insights: Fakuma puts the spotlight on medical and automotive-related materials news

October 20, 2014 10:13 am ET

Editor Don Loepp and senior reporter Frank Esposito break down all the materials-related news from the Fakuma trade fair in Friedrichshafen, Germany.    More

Molder goes to auction block

October 17, 2014 12:17 pm ET

An Illinois custom injection molding operation will be auctioned off after its owner decided to close the business.    More

Image

Plastikon expanding in Kentucky

October 17, 2014 11:24 am ET

Automotive supplier Plastikon Industries Inc. plans to more than double the size of its production facility in Leitchfield, Ky.    More

Image

Momentive gearing up for some timely LSR sales

October 17, 2014 10:58 am ET

Momentive Performance Materials Inc. has plenty of time for customers at Fakuma — thanks to colorful new watchbands made with the firm's fiber-r...    More

Market Reports

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Plastics in Mexico - State of the Industry Report

This report analyzes the $20 million dollar plastics industry in Mexico including sales of machinery & equipment, resins and finished products.

Our analysts provide insight on business trends, foreign investment, top end markets and plastics processing activity. The report also provides important data on exports, production, employment and value of plastics products manufactured.

Learn more

Plastics Caps & Closures Market Report

The annual recap of top trends and future outlook for the plastics caps & closures market features interviews with industry thought leaders and Bill Wood’s economic forecast of trends in growing end markets. You will also gain insight on trends in caps design, materials, machinery, molds & tooling and reviews of mergers & acquisitions.

Learn more

Upcoming Plastics News Events

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events