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.
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, Mich. “For the first time ever, it allowed us to put a dollar value on suppliers’ nonprice 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 nonprice 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 additional income.