UPDATE: OEM-Supplier Relations Study Shows Strong Gains for Toyota and Honda, with Ford, Nissan, FCA and GM falling well behind

Poor Supplier Relations Costing U.S. Automakers Millions

May 20, 2015, 07:00 ET from Planning Perspectives, Inc.

DETROIT, May 20, 2015 /PRNewswire/ -- Ford, General Motors, FCA US and Nissan collectively would have earned $2 billion more in operating profit last year had their supplier relations improved as much as Toyota's and Honda's did during the year.

That's one of the significant conclusions from the 15th annual North American Automotive - Tier 1 Supplier Working Relations Index® Study that looks at the automakers' supplier relations and how they impact OEM profits. This year, 435 suppliers participated.

Results of this year's study show Toyota and Honda clearly on top and continuing to distance themselves from Ford, Nissan, FCA and GM who are headed in the opposite direction.  

Photo - http://photos.prnewswire.com/prnh/20150518/216575

The study is watched carefully in automakers' boardrooms because an OEM's supplier relations rating is highly correlated to the benefits that a supplier chooses to give an OEM – including which OEM is first to see a supplier's newest technology, is provided a supplier's best personnel for support, and gets their best 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., Birmingham, MI, (www.ppi1.com). "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 enabled Henke and his team to calculate the economic value of the non-price benefits and the supplier price concessions. According to Henke, had Ford, GM, FCA and Nissan improved 8.7 percent in their WRI -- the average improvement of Toyota and Honda -- they collectively could have generated more than $2 billion in addition income, as depicted in the table below. 


Actual
2014

WRI

8.76%
Higher
WRI than
20142

Estimated

Increase in
Operating
Income
per Vehicle

2014 N.A.

Manufactured
and

Wholesaled

Vehicles3

Total
 Increase in

Operating

Income

Percent
Increase in
Operating
Income

GM

244

265

$ 279

2,685,159

$ 750,197,626

11.4%

FCA

245

266

$ 285

2,317,521

$ 661,311,637

22.8%

Nissan

273

297

$ 276

947,558

$ 261,476,915

19.4%

Ford

267

290

$ 144

2,459,253

$ 354,327,079

5.1%

Total

$ 2,027,313,258


1Toyota's WRI® improved 5.66% during 2014, Honda's improved 11.86% for an average improvement of 8.76%   2 Indicates projected supplier working relations during 2014 if relations improved like Toyota and Honda average   3 Ward's Automotive Group, Southfield, MI

Photo - http://photos.prnewswire.com/prnh/20150518/216576

For the past 25 years, Henke and his team have specialized in studying and reporting on buyer and supplier relations in the automotive and 17 other industries. Henke is also a Professor of Marketing at Oakland University, Rochester, MI, and a Research Fellow at the Center for Supply Chain Management at Rutgers University.

SOURCE Planning Perspectives, Inc.



RELATED LINKS

http://www.ppi1.com