GM, Chrysler soar in supplier survey
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General Motors and Chrysler Group learned some very hard lessons during their 2009 bankruptcies, including one taught by their Japanese competitors: Better supplier relations pay dividends. There's increasing evidence to show that lesson is taking root.
An annual report on how suppliers view their automaker customers finds that GM and Chrysler have reduced dramatically the supplier-relations gap with perennial leaders Toyota Motor Corp. and Honda Motor Co. -- in part because those Japanese automakers have fallen from their former pedestals.
Better supplier relations for automakers lead to lower pricing, quicker sharing of technology and better-quality parts, says John Henke Jr., president of Planning Perspectives Inc., the Detroit-area consulting firm that conducted its 12th annual survey of North American suppliers.
Among the findings:
-- While still tops among the six largest North American automakers, Toyota and Honda slid to their lowest-ever scores.
-- Chrysler and GM had their highest scores ever, extending a string of annual improvements that began in 2009.
-- Supplier relations for Ford Motor Co. and Nissan Motor Co. remain about where they have been since 2010: behind Toyota and Honda and ahead of GM and Chrysler.
-- The difference between the best and worst companies' scores is the smallest ever.
Henke says GM purchasing chief Bob Socia and the late Dan Knott, who until April had been head of purchasing for Chrysler, deserve credit for their companies' vast improvements.
Socia "firmly believed in the importance of good supplier relations; you can see what Dan Knott had done at Chrysler," Henke told Automotive News.
"They were influencing the culture" at their companies, he said, comparing their impact to "what Tom Stallkamp [retired head of Chrysler purchasing] and Francois Castaing [retired Chrysler head of engineering] had done in the halcyon days of Chrysler of the mid-1990s," when Chrysler enjoyed exceptionally positive relations with suppliers.
'Work to do'
The survey has the attention of automakers.
"We continue to recognize how important our suppliers are to our success," Bob Young, Toyota's vice president of purchasing for North America, said in a statement. "While we appreciate our ranking position, we clearly understand we have work to do in strengthening our relationships."
Bob Mowery, GM's executive director for supplier relations, said in a statement: "We'd like to be No. 1 in all areas. We're committed to driving these improvements across the entire organization and down to the buyer levels."
A Honda spokesman said this year's survey indicates "that supplier relationships are getting stronger, and that helps everybody. We came here 30 years ago with a concept of respect for suppliers and mutual respect for everyone, and we haven't changed our way of thinking or our way of doing business."
But Henke says Toyota and Honda dropped because their purchasers of parts today aren't following the same practices that once made the two Japanese automakers the gold standard of supplier relations.
"What we really have here is a behavioral issue," he said. "More training is going to be absolutely necessary to get them back to where they should be."
GM and Chrysler have discovered what good supplier relations can generate, and they don't want those gains to erode.
"It's reasonable to expect that both of those companies are going to continue to do exceedingly well with their suppliers because they realize the importance of doing so," Henke said.
He said both GM and Chrysler were forced by their bankruptcies to work more closely with their supply base just to survive. When they emerged from bankruptcy, the two companies continued those efforts, resulting in higher scores. Ford underwent its own transformation, beginning in 2007, but its efforts have stalled over the past three years.
"Ford knows they've got to do better. But I'm under the impression that Ford is taking a less focused approach than have GM and Chrysler," Henke said.
The payoff
For automakers, the benefits of maintaining and improving their relationships with suppliers are numerous, as are the risks of failing to do so.
Suppliers tend to share their newest technologies first with automakers with which they have excellent relationships. Henke says automakers with good supplier relations also tend to pay lower prices and receive higher quality parts, and says the inverse also is true.
Even though their scores have dropped, "Honda and Toyota are better at pricing because they have more suppliers with which they have better relations," Henke said.
Automakers say they understand what is at stake with their suppliers.
Tony Brown, who heads purchasing for Ford, said in a statement that Ford views its supplier relations "as a competitive advantage."
"Although our overall score has improved 65 percent since 2007, this year's results tell us we have more work to do to regain our momentum," he said.
Scott Kunselman, who succeeded Knott as Chrysler's head of purchasing last month, said the survey shows that the efforts Chrysler made under Knott to improve its supplier relations have begun to work.
"The survey results make it clear that while we are on the right track, we still have a long way to go," Kunselman said in a statement. "Strong supplier relationships are a high priority for Chrysler, and we will continue to look for ways to improve collaboration with our supply chain."
How it works
This year's survey included responses from 564 supplier personnel across 439 Tier 1 suppliers, representing 62 percent of the six automakers' annual purchasing, Henke said. Their answers to 40 questions in 17 areas and regarding 14 automotive commodities are converted into an overall score on a scale of 1 to 500, called the supplier working relations index.
Scores above 350 are rated good or very good, those below 250 are poor or very poor, and those in the middle are termed adequate.
The study is an independent undertaking and is not sponsored by automakers or suppliers. For the first time, the six automakers are separated by fewer than 50 points, with Toyota at the top at 296 and Chrysler at the bottom at 248. The results are a far cry from those of 2005, when GM's score bottomed out at 114 and Toyota was at 415 -- the highest grade ever for any manufacturer in any of the 18 industries Henke has studied.
In addition to an overall score, automakers receive grades from their suppliers across six purchasing areas: body-in-white, chassis, electronics and electrical, exterior, interior and powertrain.
Automakers' scores are a measure of the corporate cultures that purchasing leaders are trying to instill -- and the actions of the buyers who deal directly with suppliers.
"When we say, 'They get it,' they truly get it. They understand [good supplier relations], they're living that way, and they're trying to get their organization to think that way," Henke says of automaker purchasing heads. "They've got to get that attitude down so that their buyers start acting in the right way."
Henke says that one hindrance to improving supplier relations for domestic automakers is that they continue to reward buyers almost exclusively for shaving costs.
"They do not have behavioral metrics in place at the buyer level that says, 'You not only have to get costs down, but by the way, at the meantime, we want you to improve your relations with your suppliers,'" said Henke, who is also a professor of marketing at Oakland University outside Detroit.
Results for German automakers BMW AG, Mercedes-Benz maker Daimler AG and Volkswagen Group were presented this year, but the data only go back to 2010 instead of a full decade and are drawn from a smaller number of suppliers. Because of that limited historical background, Henke did not include the Germans' results with the other companies' tallies.
If results from German automakers were included, BMW would finish ahead of Toyota with a score of 307, and Mercedes would come in second at 300. VW would finish one point behind Chrysler in last place.
The annual survey doesn't include Hyundai-Kia Motors, because Henke said he does not yet have enough data from its suppliers to produce a statistically relevant result.
• Formerly stellar Toyota, Honda drop to their lowest-ever scores.
• Former cellar-dwellers GM, Chrysler rise to their best-ever scores.
• The 6 largest North American automakers converge around "adequate" ratings.
Source: Planning Perspectives Inc.
You can reach Larry P. Vellequette at lvellequette@crain.com.
