DETROIT, May 20, 2024
/PRNewswire/ -- Results of the 24th annual North
American Automotive OEM - Supplier Working Relations Index® (WRI®)
Study that evaluates relations between US automakers and their
suppliers were released today by Plante
Moran.
Do the legacy automakers need a new
business model -- more like the new EV manufacturers?
The study suggests they do.
The Study shows five of the six OEMs improved overall
relationships while managing continued tensions over cost-recovery
issues related to materials and tooling, and the overall fairness
of supplier commercial relations in general. These two issues have
been created and compounded by changing electric vehicle demand
that has automakers switching to hybrid configurations, or
canceling EV programs and again ramping up conventional powertrain
production while rising costs are squeezing suppliers.
In this year's study, the WRI® scores show Toyota, Honda
and General Motors finishing 1-2-3, followed by Nissan, Ford, and
Stellantis in last place. Toyota jumped 30 points to 368 that puts
the automaker alone in the upper good-very good category and is its
highest score in the WRI since 2007 when they topped out at 415.
Nissan also gained 30 points. Honda gained 13 points and scored
344. Ford dropped 22 points year-over-year putting the company in
fifth place or two places and 70 points lower since 2016.
Stellantis gained seven points but remains in last place at 152.
Between Toyota and Stellantis is a gap of 216 points.
The Working Relations Index measures the total commercial
relationship, which is a function of perceived trust, timely
communication, mutual profit opportunity, assistance, and a
reduction in friction in dealings with automakers.
"With all the challenges and conflicts facing suppliers this
past year, it's not surprising that some automakers dropped even
further in their scores. But what might be surprising to some is
that several automakers improved their scores significantly during
the past year. This shows that piece price economics alone is not
what drives the automakers' WRI score but that the score also
reflects the tangible and intangible costs to serve the OEMs," says
Dave Andrea, Principal in
Plante Moran's Strategy and
Automotive & Mobility Consulting Practice.
"The primary driver behind the largest WRI point gains is
sharing risk and cost in an equitable manner while relentlessly
pursuing cost reduction," says Andrea. "This will enhance the
mutual long-term financial and innovative capability of the
customer and the supplier. OEMs doing this best integrate their
suppliers into their corporate strategy and keep WRI-related
principles front and center in their dealings."
TOP TAKEAWAYS FROM THE WRI STUDY
With the overall industry undergoing major changes in the shift
to EVs, suppliers identified several common issues critical to OEM
success, says Andrea. Among them:
- The automakers need to revise outdated contract terms
and conditions and purchasing practices built over decades for the
new realities of the EV transition and beyond. There must
be more flexibility. OEMs can't simply say, "No material cost
recovery" when suppliers are dealing with unused capacity due to
delayed programs. Contract structures need to be updated to deal
fairly with the risks inherent in transitioning into EVs, adopting
new safety and infotainment technologies, sourcing scarce new
materials, and increasing competition from China. In uncertain, high-risk times there
needs to be more trust, transparency, and flexibility, not
less. Fixed terms and conditions must be restructured to deal with
new market conditions.
- Corporate leadership beyond purchasing -- especially finance
and engineering -- need to cooperate in managing supplier cost and
risk reduction requests. The best OEMs know faster responses,
new cost recovery formulas and the like are needed if they expect
suppliers' best efforts on their behalf. In addition, suppliers
have a choice as to who they work with and can make decisions to
manage down business with specific OEMs.
- Annual price reduction "productivity" demands by OEMs must
incorporate the cost of the total supplier
relationship. Suppliers and OEMs must look for annual cost
reductions through true productivity gains – getting more output
with fewer input resources. This takes investment which comes from
adequate returns on investment for suppliers. Meaningful
cost-reduction suggestions made by suppliers can be evaluated and
adopted more quickly by OEMs if design, engineering, and purchasing
are working together. This would expedite revalidation of parts
using lower-priced materials, reduce complexity, and lower parts
count by part consolidation. Better cost estimating and target
pricing by OEMs and suppliers would help correct this.
"There's no question the industry has run into unprecedented and
unexpected challenges in the shift to EVs. However, OEMs that
effectively address these issues are generally stronger, more
profitable, and become customers of choice for suppliers," said
Andrea.
HONDA REMAINS FIRST IN PURCHASING EFFECTIVENESS, FOLLOWED BY
TOYOTA and GENERAL MOTORS
"Purchasing Effectiveness" is another important overall measure.
It rates OEMs on seven important variables, as indicated in Figure
2. Again this year, Honda ranked the highest in purchasing
effectiveness which involves timely communication, resolving
issues, and buyer accessibility among other characteristics shown
in the table.
In overall OEM Purchasing Organization Effectiveness, Honda led
in six of the eight categories with a composite average score of
3.46. Toyota purchasing was second and led in two important
categories -- timely communication and buyer effectiveness in
resolving issues. GM was third with a composite score of 3.24,
followed by Nissan at fourth with 2.91. Ford was fifth with 2.56, a
drop from last year, and Stellantis was last in all seven
categories at 2.30.
WRI CORNERSTONES: OEM-SUPPLIER TRUST AND
COMMUNICATION
The Study has shown trust and communication to be the
cornerstones of good working relations, especially in the high-risk
environment automakers and suppliers are now dealing with.
Billions of dollars and thousands of jobs are at stake.
While the key to mutual success is trust, trust is based on
three factors: having the OEM customer set realistic expectations;
delivering on commitments; and sharing information.
Figure 3 shows overall Trust with Toyota, Honda, and GM having
the highest Trust rankings.
However, this year Nissan had a slight improvement, Ford dropped
significantly, and Stellantis was unchanged. Note how the black
bars of the Trust rankings track the overall WRI rankings.
TIMELY COMMUNICATION KEY
Specific in Buyer Communication is sharing information on the
OEM's long-term purchasing strategy on a timely basis (Figure 4).
Here the bottom three OEMs match their order in the WRI®
while the top three are reordered slightly with Toyota first, GM
second followed by Honda.
"All six of the OEMs need to improve in this important area,"
said Andrea. "In this uncertain and high-risk business environment,
communication is key, because supplier CEOs have an increasing
number of OEM customers they can work with. Their decision often
comes down to asking and answering three key questions: Who do I
trust? Where will I get the best return on investment? And what is
the prospect for future business? So, it's in the OEM's best
interest to maintain open and honest communication with its
suppliers."
However, communication goes beyond the external OEM-to-Supplier
communication, said Andrea. The OEMs also must improve their
internal communication to better align purchasing, engineering, and
manufacturing so they're working together to achieve the same
corporate goals – greater efficiency, reduced cost, and greater
speed. "This will take cost and time out of the entire supply chain
while helping both the OEMs and suppliers achieve their cost and
financial performance goals," said Andrea.
When asked about OEM interactions between purchasing,
engineering, and manufacturing and its impact on serving the
customer, suppliers' rankings of the OEMs generally matched the
WRI, with Ford and Stellantis the worst and Toyota and GM the best
at coordinating the three functions.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE TOPICS
Supplier relations are also being impacted by the global
requirements of environmental, social, and governance (ESG)
compliance. ESG requirements are becoming part of a suppliers'
performance scorecard. In the survey, suppliers were asked four
questions related to ESG policy communication, supplier resource
commitments, joint efforts and return expectations. The averaging
of the supplier responses to these questions ranks the OEMs exactly
as the suppliers rank the OEMs on the WRI. This indicates that
better supplier relationships correlate with better ESG
performance.
About the Working Relations Index® Study
Now in its 24th year, the 2024 North American Automotive
OEM-Tier 1 Supplier Working Relations Index® Study was conducted by
Plante Moran from mid-February to
mid-April. Respondents are executives from Tier-1 suppliers
serving Ford, General Motors, Honda, Nissan, Stellantis, and
Toyota. The annual Study tracks supplier perceptions of working
relations with their automaker customers in which they rate them
across the eight major purchasing areas broken
down into 20 commodity areas. The results of
the Study are used to calculate the WRI® which can then be used to
calculate the economic value of working relations based on a
proprietary economic model.
The respondents to the survey were 696 supplier executives from
429 unique Tier-1 suppliers. This number of responses easily
represents 50% of the six OEM's North
America annual purchases. The sales personnel provided data
on 2,210 buying situations (e.g., one supplier responding can sell
into multiple components groups of one OEM, such as chassis parts
and powertrain for two buying situations). Demographically, the
supplier respondents represent 41 of the Top 50 NA suppliers and 69
of the Top 100 NA suppliers.
The Study was founded in 2001 by Dr. John Henke, CEO of Planning Perspectives, Inc.,
and acquired by Plante Moran in
2019. The automakers utilize the Study carefully because the
attributes measured by the Working Relations Index®
(WRI®) are highly correlated to the benefits OEMs
receive from their suppliers, including competitive pricing,
investment in innovation and technology, and better program launch
support. These benefits contribute to the OEM's operating profit
and competitive strength.
About Plante Moran:
Plante Moran is among the nation's
largest audit, tax, consulting and wealth management firms and
provides a full line of services to organizations in the following
industries: manufacturing and distribution, financial services,
service, healthcare, private equity, public sector, real estate,
construction, and energy. Throughout the firm's 100 years in
business, Plante Moran has grown to
a staff of more than 3,800 professionals throughout the United States with international offices
in Shanghai, China; Mumbai, India; Tokyo, Japan; and Monterrey, Mexico. Plante Moran has been recognized by a number of
organizations, including Fortune magazine, as one of the country's
best places to work. For more information, visit
plantemoran.com.
View original content to download
multimedia:https://www.prnewswire.com/news-releases/toyota-soars-ford-plummets-honda-gm-nissan-and-stellantis-make-gains-in-2024-working-relations-study-302149681.html
SOURCE Plante Moran