Detroit 3 make big gains in US supplier survey

ERJ staff report (AN)

Detroit, Michigan -- The Detroit 3 didn't spend the past two years just cleaning up their cost structure. They also improved supplier relations to the point that they're within striking distance of the industry's top performers.

A healthy win-win relationship with suppliers is a key factor that not long ago separated top-level automakers (Toyota, Honda and Nissan) from also-rans (the Detroit 3) in North America. Now it's a horse race.

Some key changes, shown in the annual supplier survey by Detroit-area research firm Planning Perspectives Inc.:

-- Chrysler Group, reflecting CEO Sergio Marchionne's vision for cooperation and Chrysler purchasing chief Dan Knott's push for harmony, has dramatically improved relations with suppliers just two years after a self-admitted phalanx of problems.

-- Toyota Motor Corp., followed by Honda, still lead the pack -- but by far less than they did five years ago.

-- Supplier relations with Honda Motor Co.'s North American manufacturing arm have been sliding steadily for four years, and Ford now nips at Honda's heels.

-- Nissan Motor Co., General Motors and Chrysler are in a statistical dead heat.

The survey monitors the Detroit 3 and Japan's three top sellers -- Toyota, Honda and Nissan -- and the results go well beyond bragging rights. Automakers reap big benefits from good supplier relations: higher quality, lower prices and a willingness by innovative suppliers to share new technology.

Scott Paradise, marketing vice president for the Americas for Magna International Inc., North America's largest supplier, said his experiences with automakers back up the survey findings.

Toyota and Honda "are very consistent in what they do, while the Big 3 have changed for the better," he said.

Better communication

Ford, Chrysler and GM all are communicating more frequently with suppliers, he said. Their production forecasts are getting more accurate, and they are paying suppliers faster.

"They are all working on expediting the process," Paradise said. "That has a huge impact on the supply base."

Take Chrysler. Although it was last among the six companies with an index score of 221, that was up from 162 in 2009.

In the annual study, suppliers rank automakers in 17 areas. Suppliers express their level of trust, along with their willingness to invest in new technology for specific customers and to share that technology.

Survey author John Henke Jr. said specific actions produced the rise in Chrysler's score. About a year ago, for example, Knott began to speed up Chrysler's chronically slow resolution of payment disputes.

"They've been working their butts off on very simple things like paying suppliers on time," said Henke, president of Planning Perspectives. "They've been working diligently to get the low-hanging fruit, and we are seeing the fruits of their labor."

Said Knott: "I'm pretty pleased with our improvement over the last two years. But there is more work to do. It will be a couple more years before we have a stable system."

Neil DeKoker, president of the Original Equipment Suppliers Association, says the Henke survey accurately reflects efforts by the Detroit 3 to overhaul purchasing operations.

GM, Ford and Chrysler all have shown more willingness to compensate suppliers for rising raw material costs. Chrysler and GM both conduct monthly teleconferences with suppliers to keep them informed on production issues, DeKoker said.

"I think the Detroit 3 are more or less moving in the right direction," DeKoker said.

415 suppliers

For the survey, conducted from early March to mid-April, 415 Tier 1 suppliers ranked the automakers on issues such as communications, profit opportunities, contract terms, ways the automakers helped or hindered the suppliers' operations and treatment of suppliers' intellectual property.

GM continues to improve slowly. Henke credits GM's improved coordination of product engineering and purchasing, which previously weren't even in the same building.

Ford stands out

But Ford still has the Detroit 3's best purchasing operation.

A year ago Ford moved past Nissan into third place. The survey implies that Ford's Aligned Business Framework -- which steers about half of Ford's parts contracts to 89 long-term suppliers -- has gotten results. Only Toyota and Honda were more likely than Ford to reward top suppliers with new contracts.

Or consider the fear factor. When suppliers fear retaliation from customers, it indicates an adversarial relationship.

Only 17 percent of Ford's suppliers said in the survey that they cut prices out of fear that Ford might reduce their business, down from 47 percent in 2007.

General Motors and Chrysler have made similar progress in that area. This year 19 percent of Chrysler suppliers said they cut prices out of fear of retaliation, down from 35 percent in 2007. And 24 percent of GM suppliers said they cut prices to avoid retaliation, down from 52 percent in 2007.

After a two-year stint as the top supplier in Henke's survey, Honda fell to second place this year.

Honda's relations with suppliers have been eroding slowly since 2007, the survey shows. The responses suggest that the automaker has taken a more adversarial approach to cost cutting in recent years.

This year, for example, 12 percent of Honda suppliers said they cut prices because they feared a loss of business, well up from 4 percent in 2007.

Back on top

Toyota's overall score was almost unchanged this year, but that was good enough to put it back on top. "Toyota has a very consistent purchasing operation," Henke said. "They've had stable [survey] results despite the earthquake in Japan and the sudden acceleration issue."

While overall index results for Toyota and Honda have eroded, both companies maintained a significant lead over the Detroit 3 on the issue of trustworthiness. Toyota and Honda scored higher than the other four automakers when suppliers were asked about their willingness to invest in and share new technology.

Automakers' responses to the survey were muted. In an e-mailed statement, Ford purchasing chief Tony Brown said he was pleased with the results, noting that Ford had improved its survey score four years in a row.

In a written statement, GM purchasing chief Bob Socia noted his efforts to speed up payments to suppliers and improve coordination between GM's purchasing and engineering operations.

A Toyota spokeswoman said the company is "committed to continuously improve and strengthen our supplier relationships."

From Automotive News (A Crain publication)

Press release from Planning Perspectives, Inc.