OEM-Supplier Relations Study Shows Gains for Toyota, Honda

Update: OEM-Supplier Relations Study Shows Strong Gains for Toyota and Honda

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 Working Relations Index tracks the relations between the six major U.S. and Japanese automakers and their Tier One suppliers. It's important because the better their working relations with suppliers, the greater the direct (cost-reductions) and indirect (innovation, investment, support) benefits the automakers receive. Toyota and Honda have always scored well above the Detroit. (PRNewsFoto/Planning Perspectives, Inc.)
The Working Relations Index tracks the relations between the six major U.S. and Japanese automakers and their Tier One suppliers. It’s important because the better their working relations with suppliers, the greater the direct (cost-reductions) and indirect (innovation, investment, support) benefits the automakers receive. Toyota and Honda have always scored well above the Detroit. (PRNewsFoto/Planning Perspectives, Inc.)

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.

This table shows that if Ford, FCA, GM and Nissan had improved their supplier relations by 8.7 percent this year – the average gain of Toyota and Honda – those four automakers collectively could have earned an estimated $2 billion more. This would have been an operating income increase from about 5 percent to nearly 23 percent. Toyota and Honda continue to extend their lead over the other four in supplier relations. (PRNewsFoto/Planning Perspectives, Inc.)
This table shows that if Ford, FCA, GM and Nissan had improved their supplier relations by 8.7 percent this year – the average gain of Toyota and Honda – those four automakers collectively could have earned an estimated $2 billion more. This would have been an operating income increase from about 5 percent to nearly 23 percent. Toyota and Honda continue to extend their lead over the other four in supplier relations. (PRNewsFoto/Planning Perspectives, Inc.)

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.

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