May 18, 2015—The 15th annual North American Automotive - Tier 1 Supplier Working Relations Index Study has been released. The study looks at automaker-supplier relations and how they impact OEM profits.
This year, 435 suppliers participated in the study. The results show that Toyota and Honda on top, distancing themselves from Ford, Nissan, FCA and GM.
The study is carefully monitored in automaker boardrooms because an OEM’s supplier relations rating is highly correlated to the benefits that a supplier chooses to give an OEM, according to the report. That includes which OEM is first to see a supplier’s newest technology, is provided a supplier’s best personnel for support, and gets their bets pricing—all of which impacts an OEM’s competitiveness and operating profit.
"Last year we unveiled an economic model that proves a direct cause-effect relationship between an automotive OEM's supplier relations and the OEM's operating profit," said the study's author, John W. Henke, Jr., Ph.D., president and CEO of Planning Perspectives Inc. "For the first time ever, it allowed us to put a dollar value on suppliers' non-price benefits – those valuable actions and practices, which along with supplier price concessions make a substantial contribution to an OEM's competitiveness. The economic model enables us to determine the economic value of the non-price benefits and the supplier price concessions, which in turn enables us to calculate the supplier total economic contribution to the operating profit of each OEM."
"This year, Toyota and Honda improved their WRI ranking a combined average of 8.7 percent over last year's levels. Using our economic model, we know that if supplier relations at Ford, Nissan, FCA and GM also improved by 8.7 percent, they each would have realized significantly higher operating income – an estimated $2.02 billion collectively. At the low end, Nissan would have generated another $261 million and at the high end GM would have earned another $750 million, with Ford and FCA in between,” Henke added.
Other significant findings include:
- Toyota's and Honda's continuing efforts to improve supplier relations have paid off handsomely as they are ranked one and two, respectively, for the fifth straight year, well ahead of the other four automakers. Toyota has been ranked in first place since the study's inception in 2002—except for 2009 and 2010 when Honda captured first place.
- Honda, with 11.8 percent improvement this year, nearly doubled Toyota's improvement of 5.6 percent. If Honda keeps up the pace, it could take over first place from Toyota next year. Honda is the most preferred customer of suppliers, but just slightly over Toyota.
- Ford has regained third place over a declining Nissan, but only because Ford declined only 2 percent compared to Nissan's 10.6 percent decline. Ford has dropped to its lowest ranking in five years, but is significantly ahead of FCA and GM.
- In a major shift, Nissan, which was most improved overall last year, had the greatest drop in ratings this year and slipped to fourth place behind Ford. This year, Nissan is the least preferred customer of the six OEMs.
- And, for the second year in a row, FCA's and GM's rankings have fallen. They are now tied for last place, having both dropped 8.5 percent in the rankings—more than 100 points behind leaders Toyota and Honda.
Click here to see the full study.
