Toyota's turnaround with suppliers credited to 2 execs

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A troubleshooting Japanese executive and an American purchasing boss were the driving force behind a sharp improvement in Toyota's relations with vendors in North America, concludes supplier relations guru John Henke.

A newly released survey by Henke's consultancy, Planning Perspectives Inc., shows that after a six-year flirtation with mediocrity, Toyota's purchasing operation has re-emerged as the North American auto industry's gold standard.

And Henke credits Simon Nagata and Robert Young with leading the turnaround.

Nagata, Toyota's former North American purchasing chief, returned to the United States in 2013 as head of North American manufacturing and r&d. Young was named Toyota's North American purchasing chief in 2011.

Toyota and Honda Motor Co. were the top-ranked automakers in North America, according to 362 suppliers who rated their customers' purchasing programs on sixteen variables.

Suppliers gave Toyota and Honda high ratings for a variety of factors, including rewards for cost cutting, compensation for canceled programs and cost-cutting flexibility.

No. 3 Nissan Motor Corp. and No. 4 Ford Motor Co. also received "adequate" ratings in the survey.

No. 5 Chrysler Group and No. 6 General Motors were rated "poor."

The German automakers' North American purchasing operations were evaluated separately, reflecting their lower North American production. BMW AG received a strong rating, but Mercedes-Benz and Volkswagen AG scored significantly lower than other automakers, trailing Chrysler and GM.

Toyota and Honda finished on top because they are "getting back to the basics," said Henke, president of Planning Perspectives. "Very clearly, the Japanese have gotten their act together. They are back doing the right things that they had done before the recession."

The Japanese automakers' purchasing operations had been hampered by the 2008-09 recession, the 2011 earthquake in Japan and a rapid expansion of their North American purchasing staffs, Henke said.

Unlike their Japanese peers, GM and Chrysler had their scores decline slightly from the previous year. Henke faulted purchasing bureaucracies.

"Chrysler and GM need to get their buyers on board and tie their compensation to improved supplier relations," Henke wrote. "Clearly, their buyers are the weakest link in their supplier relations."

Despite GM's rating, Henke says, suppliers reported that GM purchasing chief Grace Lieblein has worked hard to improve relations with suppliers following the company's controversial revision last summer of its standard "terms and conditions" contract for vendors.

Lieblein subsequently dropped the most onerous provisions of that contract and added key vendors to GM's supplier council. "She's out there, pounding the pavement to get more trust with suppliers," Henke said. "I think GM would be worse off without her."

In a written statement, Lieblein told Automotive News that she is determined to improve GM's supplier relations. "We're in the midst of a cultural change that is sweeping in nature, and the message and tone needs to start at the top," she wrote.

Chrysler attributed its poor survey results in part to a new online vendor payment system that suffered a glitch-filled rollout last year, plus rising production levels that stressed its suppliers.

Adequate to poor
About 360 suppliers rated automakers' North American purchasing operations on 16 variables. The German automakers were rated separately from the others because they had smaller production volumes. Higher scores are better; no company has ever scored more than 450.
    
AUTOMAKER2014 SCORE2013 SCORE2014 RATING
Toyota318297Adequate
Honda295287Adequate
Nissan273256Adequate
Ford267271Adequate
Chrysler245250Poor
GM244251Poor
    
BMW311324Adequate
Mercedes227289Poor
VW181231Poor
Note: Hyundai was not rated because the survey did not receive enough responses from the automaker's suppliers.
Source: Planning Perspectives

Toyota's turnaround


Aside from 2009 and 2010, Toyota has been the Henke survey's top-ranked automaker during the past decade.

But after peaking in 2007, the automaker's index score declined steadily until this year. Henke pointed to Nagata and Young for the turnaround.

Young was named Toyota's North American purchasing chief in 2011. Young told Automotive News he began integrating purchasing with product development early in 2013. He moved his office from Toyota's manufacturing headquarters in Erlanger, Ky., to its technical center near Ann Arbor, Mich., where Toyota houses its product-development staff.

He took 20 purchasing staffers with him. The rest of his 300-member staff will move to Ann Arbor by the end of 2016.

Young's efforts to coordinate activities with product development got a boost last year when Nagata -- Toyota's former North American purchasing chief -- returned to the United States as head of North American manufacturing and r&d. Nagata has spearheaded the company's effort to overhaul product development, commonize parts and boost production.

With purchasers and designers in the same facility, "better decisions are made, and decisions are made more quickly," Young said. "It allows us to ensure that we speak with one voice to our suppliers."

Nissan vs. Ford


Nissan and Ford got comparable ratings, but Nissan has the momentum, Henke said. Nissan showed the second-greatest improvement this year and moved slightly ahead of Ford. Nissan gave suppliers more flexibility to meet piece-price targets, and it compensated suppliers when it delayed or canceled vehicle programs.

Ford had a good record of compensating suppliers for raw-material cost increases, but it did not do a good job with communication. Suppliers also gave Ford purchasing chief Hau Thai-Tang low grades for building trust, but the Henke report added that he is "new to his position and hasn't had time to fully establish himself."

In a written response, a Ford spokeswoman noted that Ford unveiled a program last year that allows suppliers to help Ford benchmark its vehicles in the early stages of their design cycles. Suppliers thus could suggest cost-cutting measures that benefit both sides before a design is frozen.

It's one of a number of steps that Ford, along with GM and Chrysler, is taking to cultivate suppliers. But it's too soon to tell how effective those steps will be.

You can reach David Sedgwick at dsedgwick@crain.com.


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