Study: Suppliers, automakers must consult early

By Chaz Osburn, Automotive News / August 30, 2004

DETROIT - It's no secret that relations between suppliers and automakers are strained. But there are solutions.

A study by A.T. Kearney Inc. concludes that involving suppliers early in a vehicle's development - a common practice with the Japan-based automakers - is one way to improve relations.

Automakers also should work with suppliers on cost reductions during the design phase. And they should reward supplier innovation, the consulting firm says.

Kearney surveyed 85 automaker and Tier 1 and Tier 2 executives in North America.

The company found that the focus on short-term price reductions is a key factor in why 44 percent of the respondents characterized relationships as strained.

Echoing previous studies, Kearney says supplier relations are better with the Japanese transplants.

"There's been significant focus even with Toyota in pressures to reduce price," says Dan Oxyer, vice president of Kearney's North American automotive practice in Southfield, Mich. "Price reductions of up to 5 percent year after year are expected."

But Oxyer says Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. do a better job than the Big 3 of working with their suppliers on pricing.

He says it comes down to collaboration.

"In North America, several of the OEMs have told me engineering has agreed to a specific target price with the supplier," he says. "They both walk away feeling pretty good about achieving that target price. But when it moves to the purchasing negotiations, a new price is then introduced, which then drives this mistrust."

Oxyer says there's a danger to poor relations. Automakers could lose out on innovative technology.

He warns, "Without significant upgrading of these relationships, it will be difficult for either side to maintain the level of competitiveness required in today's global market."