FOR: Planning Perspectives, Inc. Birmingham, MI HOLD FOR RELEASE UNTIL 12:01 a.m. EDT MONDAY, May 23, 2011 CONTACT: Mike Hedge Hedge & Company, Inc. Public Relations 248-789-8976 (cell) mhedge@hedgeco.com Toyota back in 1st place, Honda drops to 2nd, Ford maintains 3 rd, while GM and Chrysler Continue to Improve in annual Automaker-Supplier Working Relations Rankings DETROIT, May 23, 2011 There s good news for the US Big Three automakers and not so good news for the Big Three Japanese automakers in the 11 th annual study of working relations between the six North American automakers and their suppliers. As a group, the US automakers continue to show steady improvement, and the Japanese automakers continue to slip. Ford continues to lead the US automakers in having the best relations with its suppliers staying in third place overall, while GM and Chrysler continue to improve. Chrysler, while remaining in last place, has had its second straight year of significant improvement. Among the Japanese automakers, Honda, which was in first place overall for the last two years, has continued to drop and has slipped to second place behind Toyota which appears to have bottomed out, while Nissan remains stuck in neutral in fourth place. 1
Comparing the six US and Japanese automakers overall, Toyota in is first place, followed by Honda, Ford, Nissan, GM and Chrysler, according to the 2011 North American OEM Tier One Supplier Working Relations Study conducted annually by Planning Perspectives, Birmingham, MI. The annual study tracks supplier perceptions of working relations with their automaker customers in which they rank the OEMs across the six major purchasing groups broken down into 14 commodity areas. The results of the study are used to calculate the Working Relations Index (WRI) based on 17 working relations variables. This year, 451 suppliers participated, representing 63% of the six automakers annual buy. NEW FOR 2011: European Big Three New for this year, Planning Perspectives included the Big Three European auto companies with manufacturing operations in North America: Volkswagen, Mercedes-Benz and BMW. However, given this is the first year for the European companies, they are not included in Planning Perspectives official Working Relations Index because one year s worth of data doesn t provide the depth of information necessary to explain trends and relationships relative to other OEMs. The bar graph below shows how all nine automakers would rank if they were all included in this year s WRI. If all nine automakers are ranked, Mercedes would be in first place, followed by Toyota, BMW, Honda, Ford, VW, Nissan, GM and Chrysler. Ford, Mercedes and Toyota are first within their respective groups. 2
Benefits to Automakers Over the years, the study has shown that automakers with a higher WRI realize greater benefits from their suppliers such as higher quality, lower prices and more technology sharing than those automakers with a lower WRI. Similar results have been found in numerous other industries. In the last several years the US automakers, realizing that an adversarial approach to working with suppliers won t work, have been working hard to work more collaboratively with their suppliers, said John W. Henke, Jr., Ph.D., the study s author and president and CEO, Planning Perspectives. Given their continuing improvement over the last two to three years, it appears that they have made the internal management changes necessary to change the way their buyers are working with suppliers. They have begun to realize the benefits of trusting supplier relations, which should cause them to work even harder to be better. The data bears this out. Since 2008, Ford, GM and Chrysler have each reduced the number of suppliers ranking them as having very poor poor working relations, while increasing the number saying they have good very good working relations. It s roughly the opposite for Toyota and Honda, with Nissan showing slight improvement. Similarly, in the four working relations categories of OEM Communication, OEM Help, Supplier Profit Opportunity and Relationship, the Detroit Three have all shown significant improvement since 2008, with the Japanese Three remaining roughly the same. And, in the commercial areas such as OEM Rewarding High Performing Suppliers with 3
New/Additional Business, OEM Covers Sunk Costs When Programs are Cancelled or Delayed and Concern for Supplier s Profit Margin, all three US automakers have shown continuing improvement in these areas as well, while generally the opposite is happening at Toyota, Honda and Nissan. Nevertheless, the traditional leaders Toyota and Honda -- continue to have the best supplier relations, still well ahead of the US OEMs. Japan s Automakers Still Lead in Trustworthiness While the US automakers are showing big gains in several areas, the one area that they are lagging in is OEM Trust, according to the study. The benefits of OEM Trust show up in several important areas. For instance, one area where Toyota and Honda still have a meaningful lead over the US Big Three is in their respect for suppliers proprietary information and intellectual property such as patents and confidentiality of technical innovations. Another is in the supplier s willingness to share new technology without assurance of a purchase order. With the continuing need for innovation and technological leadership on both the product side and manufacturing side, the financial and competitive value of trust cannot be discounted, says Henke. The US automakers need to move toward mutually beneficial contracts that protect suppliers intellectual property a lot better than they re doing. If the Japanese automakers can do it, surely the US automakers can do it. Interestingly, all three European automakers rank higher than the US automakers in trust as well, with Mercedes and BMW having the greatest supplier trust of the nine. 4
Why the Automakers Should Care Favorable supplier rankings of the automakers have a very real impact on the OEMs future fortunes. For many years, the study has shown that automakers with the best rankings, specifically Toyota and Honda, receive the greatest benefit from their suppliers in a variety of areas including lower costs, higher quality, and supplier innovation. As can be seen in Table 1, as the WRI ranking increases, supplier trust of the OEM goes up which results in the OEM becoming a more preferred customer. This has corresponding real benefits for the OEM. Suppliers are more willing to share new technology with Honda and Toyota than with GM and Chrysler. In addition, suppliers are more willing to invest in new technology for Honda, Toyota, and Ford than they are for Nissan, GM, and Chrysler. Table 1. 2011 Benefits for OEM Chrysler GM Nissan Ford Honda Toyota Supplier willingness to invest in new 1 technology for OEM 3.2 3.4 3.4 3.6 3.8 3.7 Supplier willingness to share new 1 technology with OEM 2.6 2.8 2.9 3.0 3.2 3.3 Working Relations Index 221 236 247 271 309 327 Supplier trust of OEM 1 2.7 2.8 2.9 3.1 3.4 3.5 Preferred Customer 2-3.2 3.6 3.7 4.1 4.4 4.5 1 Five point scale 2 Six point scale The Working Relations Index is not a popularity measure, says Henke. The respondents to the study are supplier sales personnel who have commercial responsibility for 5
their OEM customers. Subsequently, the WRI measures how suppliers perceive their OEM customer works with them on a day-to-day basis. As we ve seen in every industry in which we have done similar studies, suppliers act toward their customers as they perceive their customers are acting toward them. Working Relations Variations Across Purchasing Areas Within OEMs In addition to ranking supplier working relations on an overall basis, the study measures how suppliers rank working relations for the six major purchasing areas within each OEM. What is significant is that the WRI for each purchasing area varies considerably at each automaker (Table 2), suggesting inconsistent management oversight of buyers. For the third year in a row, for instance, Chrysler s Body-In-White group had the lowest overall WRI ranking of 193 (but an improvement over last year s 161 and only 89 in 2009) of any group at the six automakers. Chrysler s best group is Interior with a ranking of 234. OEM TABLE 2. 2011 High - Low Purchasing Area WRIs for Each OEM Highest Ranked Lowest Ranked Purchasing Area WRI Purchasing Area WRI Chrysler Interior 234 Body-in-White 193 General Motors Exterior 264 Interior 204 Nissan Powertrain 290 Interior 208 Ford Electrical & Electronics 289 Interior 237 Honda Electrical & Electronics 336 Body-in-White 271 Toyota Powertrain 358 Exterior 290 At the other extreme, Toyota s Powertrain group is ranked highest with a WRI of 358, while its Exterior group is lowest with a score of 290. Of the U.S. automakers, Ford s Electrical and Electronics group scored highest with 289, while its Interior group was lowest with 237. The shifting ranges of high versus low rankings of specific Purchasing Areas within each OEM over the past several years illustrate the internal challenges each OEM faces as it works toward improving its supplier relations, says Henke. All of our research across multiple industries shows that the OEM Buyer has a profound impact on supplier trust and the overall relationship. The changing high-low ranges, coupled with the annual changes in the high and low rated Purchasing Areas within each OEM, suggest the most reliable and effective way to improve supplier working relations is to work toward more consistent Buyer behavior throughout the Purchasing organization. 6
This is a major issue facing Toyota and Honda which have been trending downward, and to a lesser extent Ford and Nissan, as each of these OEMs attempt to move its supplier working relations to higher levels. There is no silver bullet that will bring about more collaborative, more trusting supplier relations. Such relations result from complex interactions of OEM-supplier activities. While the actions of both parties reinforce the trust each party has of the other, it is the actions of the OEM that are the primary determinants of the supplier working relations, concludes Henke. Copies of the overall study, as well as more specific in-depth reports on each OEM and purchasing group, may be ordered by contacting Planning Perspectives, Inc., in Birmingham, MI. For information, phone +1.248.644.7690. #### 7
About The Study Now in its 11 th year, the annual study determines the supplier working conditions in numerous areas at the North American domestic OEMs (GM, Ford and Chrysler) and the foreign domestic OEMs (Toyota, Honda and Nissan). This year, 540 sales persons from 415 Tier 1 suppliers representing 1,984 buying situations (e.g., supplying brake systems to Chrysler, tires to Toyota, seats to GM) and 63% of the OEMs annual buy responded to the survey. Demographically, the supplier-respondents represent 37 of the Top 50 North American suppliers, 63 of the Top 100 and 80 of the Top 150 North American suppliers. The study culminates in the Working Relations Index (WRI) which is a quantitative ranking by suppliers of their working relations with each of the six OEMs. About PPI Since 1990, PPI has specialized in developing and implementing in-depth surveys of suppliers for the automotive OEMs and Tier 1 suppliers, and companies in numerous other service and manufacturing industries worldwide, including the aircraft engines, computer, construction tools, electronics, energy, and food industries. In 2001, PPI initiated its syndicated annual North American Automotive OEM - Supplier Working Relations Study. This annual study has been recognized as the benchmark of supplier working relations for the automotive industry in the Harvard Business Review and several books. The Studies provide critical sales and financial planning information for suppliers and their sales, marketing, and financial staffs, as well as a means by which OEMs and their purchasing staffs can get a reality check on their working relations with suppliers. John W. Henke, Jr., Ph.D. is president of Planning Perspectives, Inc., and a Professor of Marketing at Oakland University in Rochester, MI. PPI is based in Birmingham, Michigan USA and can be reached at +1.248.644.7690. Visit PPI at www.ppi1.com. 8