Supplier Happiness Equals Sales Success
Working Relations Index measures partnerships between suppliers and OEMs.
Most everyone in the finishing industry will tell you that what drives business is the relationship that a shop develops with its customers. Treat everyone fairly, and everyone thrives.
As we focus on automotive columns this month, we are reminded that somehow no one told the car makers about relationships, partnerships and teamwork.
I am reminded of this by a column written recently by Gary Vasilash, editor of Automotive Design and Production, sister magazine to Products Finishing.
Vasilash wrote a great piece about research done by John Henke, president of Planning Perspectives (ppi1.com), who tabulated the results for the North American Automotive OEM-Supplier Working Relations Index, the 16th Planning Perspectives report that Henke has conducted.
His study looked at how suppliers perceive Ford, GM, FCA, Nissan, Toyota and Honda. The results were computed based on answers from 647 sales people working for 492 Tier 1 suppliers to the automotive industry. The respondents were part of 1,998 buying situations, which represented 63 percent of the entire annual buy of the six OEMs.
“Unquestionably, there is a direct correlation between relations and profitability,” Henke says.
Vasilash interpreted that to mean that OEMs with very good supplier relations will make more money for several reasons, including that suppliers will probably put their best people on the OEM’s projects, and also put their best technology on it.
In addition, the supplier realizes that it is being treated fairly—and will probably keep the business—therefore, it is more likely that the supplier will make piece-price concessions and bring other benefits to its customer.
Henke calls it, “Supplier contribution to OEM operating profit (EBIT) per vehicle,” and the difference is measured by thousands of dollars.
Vasilash says that what isn’t surprising about the 16th study—because it has been this way for more than a decade—is that the Working Relations Index (WRI) has Toyota and Honda on top. (Toyota has led with the exceptions of 2009 and 2010.) So why are Camry, Corolla, Accord and Civic so well received, he asks.
The WRI scoring goes like this: 350-500 is Good-Very Good; 250-350 is Adequate; and 100-250 is Very Poor-Poor. The highest score ever tabulated with Toyota came in at 415 in 2005 and 2007. GM scored one of the lowest, 114 back in 2005.
For the most recent study, Toyota (332) and Honda (323) found themselves in the Adequate category, which is where they have found themselves in since 2008.
Vasilash points out that only nine points separate first from second place, but a whopping 56 points is between second and third. Ford checks in at 267 points, which is about where they have been for the last decade or so.
GM improved from 224 to 250 in the latest survey, but still strayed far from the leaders. Nissan fell 19 points to place fifth at 225 points, just three points better than last-placed FCA. Vasilash points out that the year before, FCA tied for last with GM with 224. Back in 2008—when it was known just as Chrysler—it was at 161, but has since shown some improvement, just not fast enough.
“It is hard to overstate the importance of suppliers to OEMs,” Vasilash says. “And as the industry is making its way boldly into the electrified, connected spaces of autonomy and mobility, the skill sets that suppliers can bring are critical.”
Vasilash recalls several years ago he was listening to an OEM executive making a high-level presentation at the Management Briefing Seminars in Michigan, and he happened to be standing next to an executive from a supplier company.
As the presenter spoke about how it is essential that they work with their “best partners,” and how that meant treating them fairly and not adversarially, the supplier executive beside him muttered that, while the top-level people at the car companies say the right things, they don’t spend enough time saying them to the right people: those who have the direct interface with the supplier community; the people in OEM purchasing.
The point Vasilash makes is a good one; top-line managers and executives at OEMs must ensure that mid-managers and the like are treating their suppliers with fairness. It is not that suppliers will provide less of a superior product for their customer, but the OEM will probably lose out on things it didn’t anticipate, such as possible lower costs and better technology and manpower from a supplier who feels the relationship is more long-term.
Vasilash’s correlation between some of the best-selling cars and the OEMs that make them being at the top of the survey is no mistake; it is significant and profound, and something every manufacturing CEO should be made aware.
Treating suppliers fairly isn’t just good for business, it is wonderful for profits.
Originally published in the January 2017 issue.
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