16 th Annual North American Automotive OEM - Tier 1 Supplier Working Relations Index Study

Transcription

1 16 th Annual North American Automotive OEM - Tier 1 Supplier Working Relations Index Study 6 th Annual Top Executive Study Participant Report 14 June Information may not be used for any commercial or academic purpose without written permission from PPI.

2 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 2

3 Table of Contents Page Introduction 4 Buyer Supplier Working Relations: A Systemic Explanation 5 Supplier Relationship Management and Supplier Relations 6 Supplier Relations and OEM Profits 8 Working Relations Activities and the Working Relations Index 11 Study Background 17 Overall Findings 21 Individual OEM Findings 25 Working Relations Index : OEM Overall 33 Major OEM Findings 35 Component Change 45 Working Relations Index Variables 55 Purchasing Areas 61 Supplier Sales 71 Basic Business Practices 74 OEM Pressures and Supplier Price Concessions 80 Supplier Reciprocal Behaviors: Supplier Benefits Provided OEMs 87 Supplier Preference of OEM as a Customer 95 Salesperson vs. Top Executive Responses Information may not be used for any commercial or academic purpose without written permission from PPI. 3

4 Introduction This report of the 2016 Top Executives OEM-Tier 1 Supplier Working Relations Index Study results is being provided to the individuals who participated in the Study. We very much appreciate your participation. Without your support this Study would not be possible. The Annual Study is the only means by which suppliers can confidentially share their working experiences at the major North American OEMs: FCA US LLC (formerly Chrysler), Ford, General Motors, Honda, Nissan, Toyota, BMW, Mercedes- Benz, VW, and Hyundai. By sharing your experiences each participating supplier has an opportunity to gain a broader understanding of each OEM s supplier working relations that would otherwise not be possible. The principal means to understanding the OEM supplier relations is through the Planning Perspectives proprietary Working Relations Index (WRI ). The WRI was developed in 2001 and has since been verified as a statistically reliable and valid measure of supplier working relations in 18 industries. Analysis of the WRI, the WRI Components and Variables, and the application of the WRI to various relations data reported by the suppliers provides insights into how a supplier might maximize its returns when working with its OEM customers. A more detailed explanation of supplier relations and the WRI are discussed in the following two sections. The report is being provided to you with the understanding that it may be used within your firm as you wish, but that no portion of the report will be shared, in any form, with anyone who is not an employee of your firm Information may not be used for any commercial or academic purpose without written permission from PPI. 4

5 Buyer Supplier Working Relations A Systemic Explanation 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 5

6 Supplier Relationship Management and Supplier Relations What are they? Definition Supplier Relationship Management is the systematic management of a firm s supplier relationships to optimize value received from suppliers through cost reduction, innovation, risk mitigation, sustainability, and growth throughout the relationship life cycle. 1 Supplier Relations encompass the interfacing practices and processes buyers and suppliers direct toward one another and the resulting attitudes and behaviours buyers and suppliers assume toward one another in the conduct of business. 1 This definition is based on Accenture s 2011 SRM definition 2 The buyer in the context of buyer supplier relations refers to the customer of the supplier or to the OEMs in the context of the Annual Study Information may not be used for any commercial or academic purpose without written permission from PPI. 6

7 Supplier Relationship Management and Supplier Relations What are they? Two phrases that are often used interchangeably when talking about buyers and their suppliers are Supplier Relationship Management and Supplier Relations. Such use is incorrect because each phrase refers to two distinct and different levels and, subsequent, sets of interfacing activities that occur between buyers and suppliers. Of the many proposed definitions of SRM the definition on the facing page is preferred because it focuses on processes and outcomes, while emphasising the importance of collaboration and implied trust between the buyer and the supplier. 1,2 In this sense, SRM refers to the general state of affairs of the multitude of activities that exist between a buyer and its suppliers. Supplier Relations, on the other hand, is not defined in the academic literature or by practitioners. Subsequently, we developed the definition on the facing page because it incorporates the state of mutual and reciprocal interests between a buyer and its suppliers, a fundamental and essential element in the conduct of successful commercial matters. This perspective categorizes Supplier Relations as a set of interfacing activities between a buyer and its suppliers that exist within and among the activities that comprise SRM. There are substantial supplier relations research findings that are of considerable relevance to the both the buyer and the supplier: 1) The attitudes and behaviours of the buyer, as the initiating party, determines the state of its supplier relations; 2) Suppliers respond in like manner to buyer attitudes and behaviours. Such reciprocal behaviour, when the buyer is trying to create collaborative relations, reinforces the buyer s intensions and causes the buyer to generate more collaborative-related behaviours; 3) Supplier relations range from adversarial to collaborative, with the more collaborative supplier relations being associated with greater benefits realized by both buyers and suppliers; 4) Prudent buyers establish with each of its suppliers the level of collaborative relations that is consistent with the importance of the supplier to the buyer's financial and marketplace success. The Annual Study is an assessment of the current supplier working relations that exists between each of the major North American automotive OEMs and their Tier 1 production suppliers Information may not be used for any commercial or academic purpose without written permission from PPI. 7

8 Supplier Relations and Buyer 1 Profits A Systemic Model Foundational Activities Buyer Activities and Behaviors Interfacing with Suppliers Collaborative Supplier Working Relations Supplier Behaviors Impacting Buyer Profits Buyer Profit Impact 1 In this context, Buyer refers to the suppliers customer

9 Supplier Relations and OEM Profits A Systemic Approach As discussed in the explanation of Supplier Relations (p. 6), prudent buyers establish with each of its suppliers the level of collaborative relations that is consistent with the importance of the supplier to the buyer's financial and marketplace success. The relevant question is how are collaborative supplier relations developed and maintained. Our research, which has been substantiated in multiple industries with numerous companies, indicates that the buyer must have in place three sets of properly configured supplier-interfacing activities if collaborative supplier relations are to occur. These three sets of activities, as shown in the above chart, are the Basic Business Practices, the Purchasing Agent Characteristics, and the Working Relations Activities. The Basic Business Practices and Purchasing Agent Characteristics are essential elements of collaborative supplier relations. They comprise the Foundational Activities, in that they do not directly impact collaborative relations, but they must be in place for collaborative supplier relations to be built and maintained. In this sense, the Foundational Activities are necessary, but not sufficient to build collaborative working relations. This year's Study includes 17 Basic Business Practices our research has found to be the most important of the myriad of business practices that every business undertakes. These Practices must be sufficiently present to provide an adequate foundation upon which collaborative working relations can be built. The business practices and their results are in the Basic Business Practices Section of the report. Our research has also found 29 Purchasing Agent Characteristics that are very important and necessary for collaborative supplier relations to develop. The nature of the Top Executives Study, however, precludes including these characteristics. The Working Relations Activities comprise the Working Relations Index. The WRI is explained in the following Section, which is followed by the WRI results of this year's Study. The purpose for building collaborative relations is the resulting supplier price and non-price benefits that suppliers, on their own volition, choose to provide the buyer. These benefits impact OEM profits. The section, Supplier Benefits, discusses the non-price benefits our research has shown impacts OEM profits. The relationship of the benefits to the suppliers working relations is discussed Information may not be used for any commercial or academic purpose without written permission from PPI. 9

10 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 10

11 Working Relations Activities and the Working Relations Index 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 11

12 Working Relations Activities 1 Components Buyer-Supplier Relationship Supplier trust of buyer Variables Supplier perception of overall working relations with Buyer Buyer open and honest communication Buyer Communication Buyer communicates timely information Buyer communicates adequate amounts of information Working Relations Index Buyer Help Buyer Hindrance Buyer help to suppliers to reduce costs Buyer help to suppliers to improve quality Buyer late/excessive engineering changes (reverse measure) Conflicting objectives across Buyer functional areas (reverse measure) Supplier given flexibility to meet cost objectives Supplier involvement in Buyer product development process Buyer shares savings from supplier cost reduction proposals 1 Buyer refers to the OEMs. Supplier Profit Opportunity Buyer rewards high performing suppliers with new/cont d bus. Buyer covers sunk costs on cancelled or delayed programs Buyer concern for supplier profits when asking price reductions Supplier opportunity to make acceptable return over long-term 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 12

13 Working Relations Activities Working Relations Index The Working Relations Activities consist of those activities (see Variables, p. 12) that have been found to be the primary determinants of collaborative supplier working relations. Originally discovered in 2001, the statistical reliability and validity of these activities have since been verified in 18 industries. To provide an easy understanding of their presence in a buyer-supplier relationship the Activities have been combined into the Working Relations Index (WRI ). The proprietary WRI is a quantification of a supplier s working experiences with a buyer to whom it is supplying products and/or services. The WRI, shown in the facing chart, is comprised of five Components, each containing two or more Variables. Each Variable is represented by specific question(s) in the Study questionnaire Information may not be used for any commercial or academic purpose without written permission from PPI. 13

14 Working Relations Index Supplier s Perception Supplier s Reaction Adversarial Worthwhile Business Our Business to Lose Short-term view Operational view Long-term view Minimal expenditures; Maximum returns Do our best Strategic actions in anticipation of Buyers needs 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 14

15 Working Relations Index The WRI is calculated by combining a weighted average response of each question associated with each Variable that comprises a specific Component to obtain the Component score. Each of the five Component scores are then weighted and combined to provide an overall WRI score for the entity for which the WRI is being determined. The WRI can be determined for the overall buyer organization, e.g., an OEM, down to individual Purchasing or Commodity Areas. The WRI value is applied to a 500 point scale, as shown on the facing page, to determine the type of working relations that exist between the supplier and the buyer being measured, i.e., the supplier s customer. The position on the scale indicates the status of the buyer's supplier working relations: Very Poor Poor (adversarial), Adequate (decent relations), or Good-Very Good (strategic). Research has found that suppliers respond to the manner by which they perceive they are being treated by the buyer. The more collaborative the relations, the more likely the supplier responses in a positive manner. The degree to which suppliers respond to the working relations the buyer has created is evident in the level of benefits suppliers provide their customer. This relationship is very apparent in the Supplier Reciprocal Behavior Section Information may not be used for any commercial or academic purpose without written permission from PPI. 15

16 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 16

17 Study Background 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 17

18 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 18

19 2016 Survey Participants The survey respondents are Top Executives of Tier 1 Suppliers who supply production goods to the North American-based automotive OEMs. Recognizing that their company might be supplying each OEM customer multiple goods for multiple vehicle programs, the Top Executives were asked to answer the survey questions as they relate to their firm's general relations with each OEM customer. Subsequently, the responses for each OEM in this report provides the Top Executives perception of their firm s overall supplier relations with each OEM. The number of responses for each OEM is below. Time Frame: Early-March to Mid-April Internet-Based Top Executive personnel Toyota: 150 Honda: 156 BMW: 87 Mercedes-Benz: 70 Ford: 221 GM: 267 FCA US: 224 Nissan: 167 Hyundai: 61 Volkswagen: Tier 1 suppliers 28 N.A. Top 50 suppliers 49 N.A. Top 100 suppliers Anonymous and confidential 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 19

20 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 20

21 Overall Findings 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 21

22 Overall Findings OEM-supplier working relations among the 10 N.A. OEMs continue to show a varied pattern of change during the past year (p. 38). VW s relations dropped to the lowest level of any OEM in the six years of conducting this Study (WRI = 157). Hyundai continues to improve its relations, but remains in the Very Poor Poor range along with Nissan and FCA, the latter having experienced a significant drop in relations over the past year (WRI = 240, 241 and 246, respectively). GM relations continue to improve and are now solidly in the Adequate range (WRI = 271), following Ford (WRI = 299 and Mercedes-Benz (WRI = 308). BMW, whose relations dropped this year, is now in third place (WRI = 321), behind Honda, whose relations improved (WRI = 336). Toyota continues to have significantly better relations than all the other OEMs (WRI = 364), except Honda. The OEMs show a wide disparity in the percentage of suppliers that are experiencing Very Good Good, Adequate, and Very Poor poor relations (pp ). VW has the greatest number of suppliers with Very Poor Poor relations (73%), followed by Nissan (54%), FCA (52%), Hyundai (49%), and GM (43%). Toyota has the greatest amount of suppliers with Good Very Good relations (56%), followed by Honda (49%), and BMW (44%). While suppliers believe that relations will be somewhat better this year with OEMs, except VW, they are generally less enthusiastic that this will happen (p. 51). Business Practices are considered to be Very Poor Poor at VW, Poor at Hyundai and Nissan, and in the low Mediocre range at FCA and GM (p. 74). Only Toyota has Good Very Good Practices and just barely. The other OEMs have mid to high Mediocre Practices. Suppliers tend to be forthcoming with benefits for their OEM customers (p. 86), with only VW 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 22

23 Overall Findings (cont d) receiving Very Poor Poor benefits. Hyundai, Nissan, FCA, and GM are receiving a Mediocre level of benefits, while Ford, Mercedes, BMW, Honda and Toyota realize benefits in the low Good Very Good range. This year s results continue to substantiate the need for having in place a good foundation, i.e., well executed Basic Business Practices, before improvement in the relational characteristics can have a meaningful impact on overall relations (p. 52). It is interesting to note that supplier Top Executives tend to have a more positive attitude toward their firm s OEM customers than do the supplier sales personnel. Comparison of the this Study s results with the sales persons Study indicate for the Detroit 3 and Japanese 3, the Top Execs believe that both their firm s overall relations and basic business practices experiences are more positive than do the firm s sales persons (pp. 96 and 98). This is particularly the case for FCA and Ford, where Top Execs assessments are significantly higher than the sales persons assessments. These results suggest that Top Execs and their sales personnel should consider more frequent communication about each other s relational experiences at each OEM customer to ensure the most appropriate cohesive strategy regarding benefits provided is being implemented Information may not be used for any commercial or academic purpose without written permission from PPI. 23

24 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 24

25 Individual OEM Findings 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 25

26 Volkswagen Bottom of the OEMs and Getting Worse VW supplier relations after a slight increase last year dropped to its lowest level in six years (WRI = 157), significantly lagging all OEMs, except Hyundai. Suppliers believe relations will continue to worsen in the coming year. The WRI decrease resulted from significant drops in the Relationship, Communication, and Help Components. The Hindrance and Supplier Profit Opportunity Components remain essentially unchanged. Suppliers who have Good-Very Good relations decreased to 10% from 12%, while suppliers with Very Poor-Poor relations increased from 66% to 73%. VW has the highest proportion of suppliers with Very poor Poor relations of all OEMs. VW s Business Practices are rated last among the OEMs. The efforts of VW s Purchasing VP to build more trusting supplier relations is the lowest of all VPs. VW is perceived to trust its suppliers the least. VW s invoice payment practices are the lowest rated, as are its payment issues resolution activities. In addition, VW supplier are least likely to recover mandated/raw material increases and experience the least fair chargeback allocations. Pressures placed on suppliers to reduce prices are exceeded by only Nissan, while pressure to introduce innovative products/processes are the least among the OEMs. VW has the lowest rated four supplier treatment measures among the OEMs, suggesting adversarial relations are present. VW receives the least supplier benefits of all OEMs. VW is decidedly the least Preferred Customer of suppliers, rated below Somewhat Preferred, significantly lower than all other OEMs, except Hyundai Information may not be used for any commercial or academic purpose without written permission from PPI. 26

27 Hyundai Improving, but Still Among the Lowest Rated OEMs Hyundai supplier relations continue to improve (WRI = 240), exceeding VW, while equivalent to Nissan. Suppliers continue to believe relations will improve, but less so than in past years. The WRI increase resulted primarily from increases in the Communication, Help, and Supplier Profit Opportunity Components. Suppliers who have Good-Very Good relations increased to 18% from 16%, while suppliers with Very Poor-Poor relations dropped to 49% from 52%. Hyundai s Business Practices are among the lowest of the OEMs, exceeding only VW, in the high Very Poor Poor range. Efforts of Hyundai s Purchasing VP to build more trusting supplier relations lags all OEM VPs, except VW. Hyundai treats supplier proprietary information and intellectual property the least confidentially, except for VW. Hyundai is ranked among the lowest in paying invoices and resolving payment issues. Opportunities to recover mandated/raw material increases is lowest among the OEMs, as is the fairness of chargeback allocations. Pressure placed on suppliers to reduce prices increased significantly, while pressure to introduce innovation has directionally increased. Treatment of suppliers suggests a somewhat adversarial environment is present. Overall, Hyundai supplier benefits are greater than only VW. Hyundai as a preferred customer is equivalent to Nissan, somewhat better than Somewhat Preferred, and preferred only more so than VW Information may not be used for any commercial or academic purpose without written permission from PPI. 27

28 Nissan Improving, but Still at the Bottom Nissan supplier relations improved after dropping last year (WRI = 222 to 241), while lagging all OEMs, except VW and Hyundai (WRI = 157 and 240, respectively). Suppliers believe that Nissan s working relations will improve this year, but with less confidence than in prior years. The WRI increase is the result of increases in the Relationship, Communication, and Supplier Profit Opportunity Components. Suppliers with Good-Very Good relations increased to 23%, while suppliers with Very Poor Poor relations decreased to 54%, a percentage exceeded only by VW. Nissan s Business Practices Activities are ranked just below the Mediocre range ahead of VW and Hyundai. Nissan s Purchasing VP continues to lag all OEM VPs, except VW and Hyundai, in working toward building more trusting supplier relations. Nissan invoice payment and payment resolution continue to be ranked among the lowest OEMs. Recovery of mandated/raw material increases and fairness of allocation of chargebacks is also rated among the lowest OEMs. Pressure placed on suppliers to reduce prices is the highest among the OEMs. This high pressure combined with the low four supplier treatment measures suggests adversarial treatment of suppliers is occurring. Nissan receives supplier benefits that are greater than only what VW and Hyundai receive. Nissan lags all OEMs, except VW and Hyundai as a Preferred Customer of suppliers, having dropped to its lowest rating in three years Information may not be used for any commercial or academic purpose without written permission from PPI. 28

29 FCA US Dropping back to Poor Relations FCA s supplier relations decreased significantly (WRI = 246 from 270) and now significantly lags all OEMs, except VW, Hyundai, and Nissan. Suppliers continue to believe that working relations with FCA will improve slightly this year, but less so than past years. The WRI decrease came primarily from lower ratings in the Relationship, Communication, and Help. All other Components also decreased, but only slightly. FCA Poor Very Poor supplier working relations surged to 52% from 41%, the highest level in three years, with suppliers with Good Very Good relations dropping to 22% from 29%. FCA Business Practices Activities remain constant, above VW, Hyundai, and Nissan, in the low Mediocre range. FCA s Purchasing VP is among the lower half of the OEMs in working toward building more trusting supplier relations. FCA trust of suppliers is in the mid-point of the OEMs, as is FCA s confidential treatment of suppliers proprietary information and intellectual property. Invoice payments and payment issues continue to remain a problem for FCA suppliers, as FCA continues to be ranked among the lowest OEMs in these areas. Pressures placed on suppliers to reduce prices, to improve quality, and to introduce new innovation remain at reasonable high levels. While FCA s treatment of suppliers is at the mid-point of the OEMs, indicating poor, but not necessarily adversarial relations. Supplier benefits for FCA have dropped slightly, but remain ranked in the middle of the OEMs, slightly below GM. FCA has dropped significantly as a Preferred Customer, lagging all OEMs except VW, Hyundai, and Nissan Information may not be used for any commercial or academic purpose without written permission from PPI. 29

30 General Motors Continued Improvement, but Still in Lower Half General Motors supplier relations continue to improve to their highest level in six years (WRI = 271), while significantly lagging Toyota, Honda, and BMW. Suppliers continue to believe that GM s working relations will continue to improve somewhat this year. The WRI increase is the result of increases in the Help and Supplier Opportunity Components, and slight increases in the Relationship and Hindrance Components. Suppliers with Adequate relations increased to 27% from 21%, while suppliers with Very Poor Poor dropped from 50% to 43%. Suppliers with Good Very Good relations remain constant. GM s Business (BPI = 316) Activities are ranked just in the Mediocre range slightly above FCA, but lagging Ford. GM s Purchasing VP ranks among the highest OEMs in working toward building more trusting supplier relations. GM s confidential treatment of suppliers proprietary information and intellectual property is ranked with FCA and Nissan, better than only VW and Hyundai. GM s invoice payment and payment resolution practices have all dropped, but remain midway among the OEMs Pressures placed on suppliers to reduce prices, to improve quality, and to introduce new innovation remain high. Concurrently, treatment of suppliers is moderate among the OEMs suggesting the pressures may be negatively impacting how suppliers are treated. Suppliers provide GM benefits that are greater that what VW, Hyundai, and Nissan receive. GM as a Preferred Customer of suppliers remains constant, exceeding VW, Hyundai, Nissan, and FCA Information may not be used for any commercial or academic purpose without written permission from PPI. 30

31 Ford Back on Track, but Still in Fifth Place Ford's overall supplier relations improved to the mid - Adequate range (WRI = 299), significantly behind Toyota, BMW, and Honda, and significantly ahead of GM, Hyundai, Nissan, and VW. Suppliers continue to believe working relations with Ford will somewhat improve this year. The WRI increase resulted primarily from an improvement in the Supplier Profit Opportunity Component, with minor increases in the Relationship, Communication, Help, and Hindrance Components. Suppliers with Good Very Good relations increased to 36% from 32%, while Very Poor Poor relations decreased to 38% from 42%, but remain higher than the 34% of two years ago. Ford s Business Practices Activities have increased to the mid - Mediocre range in the middle of the OEMs. Ford s VP building more trusting supplier relations has significantly increased since last year and is now ranked fourth among the OEMs in this endeavor. Ford trust of suppliers lags only Toyota, Honda BMW, and Mercedes, as does Ford s confidential treatment of supplier proprietary information and intellectual property. Ford is ranked behind only Toyota, Honda, BMW, and Mercedes in recovery of mandated/raw material cost increases and fair chargeback allocations. Pressures placed on suppliers to reduce prices, to improve quality, and to introduce new innovation have all increased to their highest level in three years. Concurrently, Ford treatment of suppliers has improved, in all measures, two significantly, in the last year. Ford supplier benefits have increased significantly and are now equivalent to what is received by Mercedes, BMW, Honda, and Toyota. Ford continues as a Preferred Customer, equivalent to Honda, while lagging only Toyota Information may not be used for any commercial or academic purpose without written permission from PPI. 31

32 Mercedes-Benz Supplier Relations Continue to Improve, Continues in Fourth Place Mercedes-Benz supplier relations increased to their highest level in four years (WRI = 308), behind Toyota, Honda, and BMW. MB significantly lags Toyota and is significantly higher than FCA, Nissan, Hyundai, and VW. Suppliers believe relations will continue improving this year, but with less conviction relative to the last two years. The WRI increase resulted from slight improvement in the Relationship and Profit Opportunity Components. Suppliers who have Good-Very Good relations remained steady, 37% to 36%, Adequate suppliers increased to 31% from 26%, while suppliers with Very Poor-Poor relations dropped to 33% from 37%. Mercedes-Benz Business Practices Activities increased slightly to 327, equivalent to Ford, while lagging BMW, Honda, and Toyota. Efforts of MB s Purchasing VP to build more trusting supplier relations lags all OEMs, except Nissan, Hyundai, and VW. MB trust of suppliers increased significantly and is now equivalent to BMW, while trailing Honda and Toyota. MB follows only BMW, Honda, and Toyota in treating supplier proprietary information and intellectual property confidentially. Pressure placed on suppliers to reduce prices has increased significantly, while pressures to improve quality, and to introduce new innovation remained constant. These pressures haven t had a noticeable negative impact on MB treatment of suppliers as its four measures of supplier treatment are among the highest, lagging only Toyota, BMW, and Honda. Overall, Mercedes-Benz receives supplier benefits that places it in the middle of the OEMs. Mercedes-Benz is also ranked in the middle of the OEMs as a Preferred Customer of suppliers Information may not be used for any commercial or academic purpose without written permission from PPI. 32

33 BMW Relations Drop, Now Third BMW supplier relations dropped during the past year (WRI = 321), and are significantly higher than all OEMs, except Toyota, Honda, Mercedes, and Ford. Suppliers believe relations will continue improving this year, but significantly less so than last year. The WRI drop resulted from slight reductions in every Component, particularly Communication. Suppliers who have Good-Very Good relations dropped to their lowest level in three years (51% to 44%), while suppliers with Adequate relations increased to 29% from 21%. Suppliers with Very Poor Poor relations dropped to 27% BMW s Business Practices remained constant (BPI = 338) following Toyota (BPI = 358) and Honda (BPI = 347). BMW s Purchasing VP s efforts to build more trusting supplier relations decreased slightly lagging Toyota, Honda, Ford, and GM. BMW trust of suppliers is equivalent to Mercedes trust and follows Toyota and Honda. BMW treats supplier proprietary information and intellectual property as confidentially as do Honda and Toyota. BMW is among the top OEMs in payment of invoices, resolving payment issues, providing opportunities to recover mandated/raw material cost increases, and in being fair in chargeback allocation. Pressures placed on suppliers to reduce prices have increased, while pressures to improve quality and to introduce new innovation have increased slightly since last year. The pressures have not negatively impacted the manner by which BMW treats its suppliers, as each of the four treatment measures are among the highest of the OEMs. Overall, BMW, receives the greatest amount of supplier benefits (SBI = 374), along with Ford (SBI = 374), Toyota (SBI = 378) and Honda (SBI = 380). BMW dropped significantly as a Preferred Customer of suppliers, but remains the fourth most preferred customer behind Toyota, Honda, and Ford Information may not be used for any commercial or academic purpose without written permission from PPI. 33

34 Honda Higher Relations, Lagging only Toyota Honda's supplier relations increased to a WRI of 336, and leads all OEMs, except Toyota (WRI = 364). Honda is significantly ahead of all lagging OEMs, except BMW and Mercedes-Benz. Suppliers continue to believe that Honda's relations will improve this year, but less than last year. Honda s higher WRI resulted primarily from improvements in the Communication and Supplier Profit Opportunity Components. Suppliers with Good-Very Good relations increased to 49% after having dropped to 40% last year from 51%. Suppliers with Very Poor-Poor relations decreased to 28% from 32% Honda s Business Practices Activities improved to 347 from 337, and is now in the high-mediocre range, behind Toyota (BPI = 358). Honda s Purchasing VP lags only Toyota s VP in building more trusting supplier relations. Honda trusts suppliers the most of the OEMs, except for Toyota. Honda s treating supplier proprietary information and intellectual property confidentially is consistent with Toyota and BMW (3.50, 3.54, and 3.48, respectively) Honda is generally consistent with Toyota and BMW in the payment of invoices and resolving payment issues, but lags Toyota in suppliers recovering mandated/raw material cost increases and in being fair in chargeback allocations. Pressures placed on suppliers to reduce prices has significantly increased, while pressures to improve quality and to introduce new innovation have increased directionally. Concurrently, the manner by which Honda treats its suppliers is similar to Toyota, the highest rated of the OEMs. Overall, Honda receives the greatest amount of benefits from suppliers. Honda is a most Preferred Customer of suppliers, leading all OEMs, except Toyota Information may not be used for any commercial or academic purpose without written permission from PPI. 34

35 Toyota Supplier Relations Dropped Slightly, but Still the Best Toyota supplier relations decreased slightly (WRI = 364 from 369), and is significantly higher than all OEMs, except Honda. Suppliers believe relations will continue improving this year, but with less conviction than the last two years. The WRI decrease resulted from very slight decreases in the Relationship, Communication, and Help Components. The Supplier Profit Opportunity Component increased slightly. Suppliers who have Good-Very Good relations decreased from 60% to 56%, while suppliers with Very Poor-Poor relations stayed constant (~21%) and Adequate suppliers increased slightly to 22% from 19%. Toyota s Business Practices Activities remain constant (BPI = 358), in the Good Very Good range, the highest among the OEMs. Toyota s Purchasing VP is the highest ranked in working to build more trusting supplier relations, significantly above Honda s VP who follows. Toyota trust of suppliers is the highest among the OEMs. Toyota leads all OEMs in treating supplier proprietary information and intellectual property confidentially. Toyota leads all OEMs in the payment of invoices, resolving payment issues, providing opportunities to recover mandated/raw material cost increases, and in being fair in chargeback allocation. Pressures placed on suppliers to reduce prices increased significantly to its highest level in three years, while pressure to improve quality remained steady and pressure to introduce innovation dropped. The price reduction pressure, however, has not negatively impacted the manner by which Toyota treats its suppliers, as each of the four treatment measures remain the highest of the OEMs. Overall, Toyota, with Honda, receives the greatest supplier benefits (SBI = 378 and 380, respectively). Toyota is the most Preferred Customer of suppliers, in spite of having dropped in preference in the last year Information may not be used for any commercial or academic purpose without written permission from PPI. 35

36 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 36

37 Working Relations Index OEM Overall 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 37

38 OEM Supplier Working Relations Very Poor - Poor Adequate * Good - Very Good 500 OEM - Supplier Working Relations Index VW Hyundai Nissan FCA GM Ford Mercedes- Benz BMW Honda Toyota Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 38

39 Working Relations Index : OEM Overall Major Findings The following pages (pp ) show each OEM s average WRI for each of the three WRI groups for In addition, the percent of suppliers in each of the three WRI groups is shown. VW experienced an increase in Very Poor Poor suppliers (66% to 73%), the highest among the OEMs, and a drop in Good Very Good suppliers (12% to 10%), and Adequate suppliers (22% to 17%). Hyundai s relations continued improving as suppliers with Good Very Good relations increased 16% to 18% and suppliers with Very Poor Poor relations dropped to 49% from 52%, with Adequate suppliers remaining constant at 32% - 33%. Nissan suppliers with Very Poor Poor relations decreased (58% to 54%), while Adequate suppliers increased (21% to 23%) and Good Very Good suppliers increased slightly (20% to 23%). FCA experienced a surge of suppliers with Very Poor Poor relations (41% to 52%) and a drop in Adequate suppliers (30% to 26%) and Good Very Good suppliers (29% to 22%). GM s WRI improvement resulted from a drop in Very Poor - Poor suppliers (50% to 43%) and an increase in Adequate suppliers (21% to 27%). Suppliers with Good Very Good relations remained constant (29% to 30%). Ford s WRI improvement came from an increase in suppliers with Good Very Good relations (32% to 36%), and a decrease in suppliers with Very Poor Poor relations (42% to 38%). Mercedes-Benz suppliers with Adequate relations increased (26% to 31%), while suppliers with Very Poor Poor relations decreased (37% to 33%). BMW s WRI drop came about from a decrease in suppliers with Good Very Good relations (51% to 44%), while Adequate suppliers increased to 29% from 21%. Suppliers with Very Poor Poor relations decreased slightly (29% to 27%). Honda s WRI increase occurred because of an increase in suppliers with Good Very Good relations (49% from 40%) and a decrease of Very Poor Poor suppliers (32% to 28%). Toyota experienced a decrease in suppliers experiencing Good Very Good relations (60% to 56%), while suppliers experiencing Very Poor Poor and Adequate relations increased slightly (21% to 22% and 19% to 22%, respectively). Suppliers in each of the three WRI groups among the OEMs tend to have generally the same average WRI across all of the OEMs, suggesting that the OEMs are reasonably similar in the manner in which they work with suppliers in each of the three groups of relations. Supplier anticipation for improved relations this year has generally dropped, except at GM and Ford. The importance of having in place the Basic Business Practices before relations can be improved is apparent in Chart # Information may not be used for any commercial or academic purpose without written permission from PPI. 39

40 OEM Supplier Working Relations Very Poor - Poor Adequate Good - Very Good OEM - Supplier Working Relations Index 500 GM Ford FCA Nissan Honda Toyota BMW Mercedes-Benz Volkswagen Hyundai Information may not be used for any commercial or academic purpose without written permission from PPI. 40

41 % 17% 10% 15% 15% 22% GOOD VERY GOOD % 70% 73% Volkswagen Working Relations Very Poor - Poor Adequate Good - Very Good 80% 70% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 60% 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 41

42 % 20% 20% 18% 32% % % 52% GOOD VERY GOOD % 502 Hyundai Working Relations Very Poor - Poor Adequate Good - Very Good 70% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 60% 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 42

43 % 20% 23% 23% 23% 29% % GOOD VERY GOOD 54% % Nissan Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 43

44 % 22% 26% 30% 29% % 39% 41% 52% GOOD VERY GOOD FCA US Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 44

45 % 21% 28% 29% 27% 30% % 50% 50% GOOD VERY GOOD General Motors Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 45

46 % 26% 30% 34% 32% 36% 38% 36% % GOOD VERY GOOD Ford Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 46

47 % 26% 33% 33% 31% % 37% 36% % GOOD VERY GOOD Mercedes-Benz Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 47

48 % 26% 28% 29% 27% 29% % 47% 51% GOOD VERY GOOD BMW Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 48

49 % 23% 30% 28% 28% 32% % 51% 49% GOOD VERY GOOD * Honda Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 49

50 % 21% 19% 22% 22% 25% GOOD VERY GOOD 54% 56% % * Toyota Working Relations Very Poor - Poor Adequate Good - Very Good 70% 60% Working Relations Index VERY POOR POOR ADEQUATE Average WRI by WRI Categories Buying Situation Distribution by WRI Categories 50% 40% 30% 20% 10% Percent of Occurrence Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 50

51 * * * * * Supplier Anticipation of Working Relations One Year From Now Better Somewhat Better 5.00 About the Same 4.00 Somewhat Worse 3.00 Worse 2.00 Much Worse 1.00 Volkswagen Hyundai Nissan FCA US GM Ford Mercedes- Benz BMW Honda Toyota Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 51

52 Good - Very Good Working Relations and Basic Business Practices Indices Business Practices Index WRI 500 Working Relations Index Very Poor - Poor Adequate VW Hyundai Nissan FCA US GM Ford Mercedes- Benz BMW Honda Toyota Very Good - Good Mediocre Poor - Very Poor Business Practices and Buyer Indices Black number is Working Relations Index ; White number is Basic Business Practices Index 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 52

53 Working Relations Index Component Change 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 53

54 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 54

55 Working Relations Index : Component Change Major Findings The 2010 WRI Component values have been standardized for each OEM. The following pages show the Component values of each OEM relative to The extent to which an OEM s Component values have increased over the three year period provides insight into the efforts the OEM has been undertaking to improve its supplier relations. The change in the 2016 Component value relative to the 2015 value indicates the relative impact of the Component on the OEM s WRI change during the past year. A change year-over-year is considered to be trivial. Experience has found that, generally, a change in the Component value is typically associated with a somewhat meaningful directional change among the variables that comprise the Component, which could be important to management. A 0.05 or greater change is typically associated with significant variable yearover-year changes. If the Component change is significant relative to the previous year at the 0.05 or greater level, the number is red. Each of the OEMs that improved their supplier relations during the past year, Hyundai, Nissan, GM, Ford, and Honda, did so as a result of improving their relations in four of the five Components that comprise the WRI. Mercedes improvement resulted from meaningful increases in two Components. The relations of VW, FCA, BMW and Toyota decreased as a result of a decrease in at least four Components. The specific variables that were impacted in the Components of each OEM are discussed in the following section (p. 67) Information may not be used for any commercial or academic purpose without written permission from PPI. 55