The Cost of Poor Supplier Relationships in Automotive

Suppliers that have quality relationships with automakers are more willing to give price concessions, share technology and offer support beyond what contracts stipulate, according to a new report on automaker-supplier relations.

In this study looking specifically at US Automotive Manufacturers relationships with their suppliers and also compared them with Japanese companies like Honda and Toyota. The study examines the automaker-supplier relationship and how it affects automaker bottom lines.

Automakers spend 60% to 70% of revenue on contracts with suppliers. Suppliers who rated their working relationship with automakers as "good to very good" were nearly twice as likely to meet automaker demands....

“Basically, (automakers) are paying for their pattern of behaviour," said John Henke, president and CEO of Planning Perspective,  marketing professor at Oakland University and research fellow at Rutgers University. "If the relationship is good, automakers are getting money from the suppliers and the suppliers are happy to give them that money because it's also good business on their part”.

The worsening relations between General Motors Co., Ford Motor Co. and FCA US LLC and its U.S. suppliers caused the OEMs to lose a collective $1.8 billion in operating profit in 2014 alone, according to the study. The study also compares the companies to peers Toyota Motor Corp. and Honda Motor Co. Ltd.

"(Automotive) buyers and management have to remember that cost reductions, contract changes and other similar programs do not of themselves result in poor supplier relations," he said in a statement. "It's the manner in which these programs are administered that causes poor relations with suppliers." This directly led to the drop in the Detroit 3's working relations index scores, generated from responses from 541 supplier sales personnel. The index measures communications; profit opportunities; supplier relations; "help" (willingness to help suppliers cut costs and improve quality); and "hindrance" (late engineering changes, conflicts between engineers and purchasers, etc.). 

GM had a relationship score of 224, down from 244 last year. FCA also scored a 224, down from 245 last year, while Ford scored a 261, down from 267 in 2014. Competitors Toyota and Honda increased their scores to 336 and 330, respectively, or a total average of 8.7 percent from last year, according to the study. 

Some really interesting points on the cost of poor supplier relationship management in the Automotive sector, to read more

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