FOR: Planning Perspectives, Inc.
Birmingham, MI
CONTACT:
Mike Hedge
Hedge & Company, Inc.
248-789-8976 (cell)
mhedge@hedgeco.com
2014 Annual Automotive OEM-Supplier Relations Study
Shows Toyota and Honda on top; Nissan displacing Ford in the
middle; Chrysler and GM falling behind
Detroit, May 12, 2014 – Results of the 14th annual automotive industry study on the major
US and Japanese automakers’ working relations with their suppliers show the US Big Three
are once again falling behind their Japanese competitors, with Toyota, Honda and Nissan
finishing 1-2-3 respectively in the top rankings.
The study is watched carefully in automakers’ boardrooms because an OEM’s
supplier relations rating can be directly correlated to its profitability and competitiveness –
including which OEM customer is first to see a supplier’s newest technology and gets their
best pricing.
The results of the 2014 North American Automotive - Tier 1 Supplier Working
Relations Index® Study show the following:

Toyota’s and Honda’s efforts to improve supplier relations have paid off as they
have regained their momentum and are ranked one and two, respectively, while
extending their lead. Honda is the “most preferred” customer among the six
OEMs.

Nissan, the second most improved overall following Toyota, has taken over third
place from Ford.

After showing no real improvement in supplier relations for four years, Ford has
slipped back to fourth place, having been passed by Nissan.

For the first time in six years, Chrysler’s overall ranking in supplier relations has
fallen and the company is now ranked fifth, only one point above GM.

In spite of its recent efforts to improve supplier relations, GM has been displaced
by Chrysler and has fallen into last place overall among the Big Six.

If the Big Three German automakers were included, BMW would be second
overall, while Mercedes would be well below GM and Volkswagen would be in a
very distant last place by a wide margin.
The annual study focuses primarily on Chrysler, Ford, General Motors, Nissan,
Honda, and Toyota, because these six automakers comprise 86 percent of light vehicle
sales in the U.S. The German Three – BMW, Mercedes-Benz, and VW– are reported
separately (editor’s note: see end of this news release).
2014 Annual Study News Release Page 2 of 7 Referring to the Working Relations Index® graph (below), this year’s results suggest
that the industry could be entering a new era in supplier relations that doesn’t bode well for
the US Big Three, said John W. Henke, Jr., Ph.D., president and CEO of Planning
Perspectives, Inc., Birmingham, MI, (www.ppi1.com) whose firm conducts the annual
study. Dr. Henke is also Professor of Marketing at Oakland University (Rochester, MI) and a
Research Fellow at The Center for Supply Chain Management, Rutgers University (New
Brunswick, NJ).
“History repeats itself. Historically, the Japanese automakers – especially Toyota
and Honda – had a commanding lead in supplier relations and were the companies
suppliers preferred to deal with. Then, the combination of the 2008 recession, the impact of
the 2011 Japanese earthquake and Thailand floods, and the increase in purchasing
personnel caused both companies to lose their way and their rankings plummeted,” said
Henke.
“Meanwhile the US automakers, under new purchasing leadership, made significant
improvements in their supplier relations. Now, however, the ranking trends suggest that the
Japanese automakers have figured out their problems, corrected them, and are back on
track, while the US automakers appear to be faltering. In fact, this year GM and Chrysler
supplier relations have fallen back into the Very Poor to Poor range.”
Henke and his team have identified two major sets of factors that affect supplier
relations. In the first set are 16 variables that have been identified as the primary drivers of
supplier relations. The variables comprise five components of the Working Relations Index®
that cover quality of the overall supplier relationship, communication, help given the supplier,
12 May 2014 2014 Annual Study News Release Page 3 of 7 working together, and supplier profit opportunity.
The second set of factors includes foundational business areas involving leadership,
execution and fairness. These factors must be present to achieve good relations, but do not
themselves impact the WRI® rating. Foundational areas include such things as paying
invoices on time, resolving payment issues fairly, allowing suppliers to recover some
material cost increases, and OEM terms and conditions regarding intellectual property.
“You might think of foundational areas as being the equivalent of ‘quality’ in cars
today; quality alone doesn’t drive sales, but without it, you’re not in the car business,” he
said. “This year’s results show that the Japanese automakers have a better understanding
of the foundational areas and are executing them more effectively than are the US Big
Three.”
Executive leadership and execution
One major foundational area this year’s study focused on is the role of the OEM's vice
president of purchasing and his or her buyers in building trusting supplier relations. At some
automakers, the study shows there is a disconnect between the executive leadership and
the buyers, which can contribute to lower WRI® ratings.

Of the Big Six automakers, Honda’s and Toyota’s VPs and buyers are rated
number one and two, respectively, in working to build more trusting supplier
relations, and their buyers are being the most transparent among the OEMs in
providing suppliers information. At both companies, the VPs and buyers are the
most highly rated of the OEMs.

At Nissan, the purchasing VP is seen as actively working toward building more
trusting relations, and Nissan buyers are ranked higher in working to build
trusting relations and in information transparency than the buyers at the US Big
Three.

GM’s purchasing vice president is also highly ranked in building trusting relations,
following Toyota, but GM buyers are ranked very low in working to build trust and
in being transparent when providing suppliers information suppliers need – only
slightly above Chrysler.

Efforts of Chrysler’s purchasing vice president to build more trusting relations are
at their lowest level in two years and trending downward. Chrysler buyers are
ranked the lowest of the Big Six in building trusting relations and in information
transparency.

Ford’s purchasing vice president is ranked last in building trusting relations but
he is new to his position and hasn’t had time to fully establish himself. However,
Ford buyers lead Chrysler and GM in their efforts to build trusting relations and in
supplier information transparency.
“The best possible situation is an automaker with a strong executive purchasing leader who
12 May 2014 2014 Annual Study News Release Page 4 of 7 is consistent and fair in execution and who communicates well, and has buyers who follow
this lead. That is what’s happening at the Japanese Big Three,” says Henke, “and it is an
important contribution to their moving ahead of the Detroit Three again.”
Key findings of the 2014 study show the following:

GENERAL MOTORS: For the first time in six years, GM’s ranking in supplier
relations has dropped, putting it back into the Poor to Very Poor range. The
primary reasons for the drop are a decrease in supplier trust, in supplier
communication and the amount of help GM provides (or doesn’t provide) to
suppliers to reduce cost and improve quality. GM is ranked lowest in protecting
suppliers’ intellectual property and proprietary information. GM is also the least
likely to allow recovery of material cost increases. As a result, GM is now the
least preferred customer of suppliers, in spite of the efforts of the purchasing VP
to improve – an example of good leadership, but poor execution by buyers who
interface with suppliers on a daily basis.

NISSAN: Nissan has improved across all areas of the WRI --- the only OEM to
do so. Significant improvement occurred due to suppliers being given greater
flexibility in meeting piece price and tooling objectives, and in Nissan covering
sunk costs when programs were delayed or cancelled. Nissan, however, is the
least fair, along with Chrysler, in allocating chargebacks to suppliers, but its
treatment of confidential proprietary information and intellectual property is
significantly higher than Chrysler or GM.

CHRYSLER: For the first time in six years, Chrysler’s overall supplier relations
ranking has decreased, albeit slightly, putting it back into the Poor to Very Poor
range. Chrysler buyers are ranked lowest in building trust and in transparency
when providing information. Chrysler significantly trails all OEMs in paying
invoices on time and according to terms, and in resolving issues in a fair and
equitable manner.

FORD: Ford’s overall supplier relations remained stagnant for the fifth year. It
now trails Nissan because of a drop in supplier communication and in help it
provides suppliers to reduce cost. Also, suppliers are significantly more likely to
recover material cost increases from Ford than either Chrysler or GM, but
significantly less so than from Honda and Toyota.

HONDA: For the first time since 2007, Honda’s overall supplier relations have
improved in the WRI ratings to being significantly higher than the Detroit Three,
but trailing Toyota. Of the Big Six car companies, Honda is the most preferred
customer, significantly more so than Nissan and the Detroit Three. Honda’s
increase is due primarily to improvement in three key areas: supplier
relationship, supplier communication, and supplier profit opportunity. Honda is
top-rated with Toyota in paying invoices on time and according to terms, as well
as in resolving invoice payment issues. Honda is also tied with Toyota in
allowing suppliers to recover material cost increases and in the confidential
treatment of proprietary information and intellectual property.

TOYOTA: Toyota has finally rediscovered the “Toyota Way” and is showing its
first improvement in the WRI ratings in seven years. Toyota improved in nearly
12 May 2014 2014 Annual Study News Release Page 5 of 7 all key areas including supplier trust, communication, help provided to suppliers
to reduce cost and improve quality, supplier profit opportunity, and in involving
suppliers throughout its product development process – which significantly
increased. Toyota is ranked highest in paying invoices on time, resolving
payment issues in a fair and timely manner, as well as in allocating chargebacks
to suppliers and allowing suppliers to recover materials cost increases. Toyota is
also the most highly rated in confidential treatment of supplier proprietary
information and intellectual property, and in terms and conditions concerning
proprietary information and intellectual property.
“Cleary Toyota and Honda are, once again, setting the standard for doing the right
things right when it comes to supplier relations, and it will pay off competitively for them in
the future if they keep it up. But they still have a ways to go,” said Henke.
“A few years ago, we documented the competitive advantages that accrue to an
OEM from suppliers who prefer working with them, not the least of which is getting suppliers’
best technology, the best pricing, and the best service. Chrysler and GM need to get their
buyers on-board and tie their compensation to improved supplier relations if they hope to be
the beneficiaries of all that suppliers can provide them. Clearly, their buyers are the
weakest link in their supplier relations.”
Over the years, the study has shown convincingly that automakers with Good-Very
Good working relations realize considerable benefits. Their suppliers:
•
•
•
•
Are more willing to invest in new technology to meet future OEM needs, and are
more willing to share new technology with the OEM
Are more willing to support the automaker beyond contractual terms
Communicate more openly and honestly with the OEM
Give greater price concessions to OEMs.
Whereas, automakers with poor relations:
•
•
•
Receive smaller price concessions and must work harder to get them
Get supplier support with less experienced supplier personnel
Typically are not among the first to get their suppliers’ best ideas and new
technology.
Inconsistent Performance across OEM Purchasing Areas
Another factor that can impact the WRI ratings is performance consistency across an
automaker’s six major purchasing areas and reducing the range between the top-ranked
purchasing area and lowest ranked area (see Table 1 below).
While Toyota is top-ranked overall, there is an 83-point range between its highestranked purchasing area, Electrical & Electronics, and its lowest-ranked purchasing area,
Interior. Conversely, while GM is last in the WRI rankings this year, it has only a 49-point
spread between its highest ranked purchasing area and its lowest ranked area. Nissan,
12 May 2014 2014 Annual Study News Release Page 6 of 7 ranked third overall, is best in consistency across purchasing areas with only a 32-point
spread.
This inconsistency is further illustrated by comparing the automakers’ scores in these
purchasing areas to last year’s results – most are very different. For instance, last year,
Toyota’s top purchasing area was Interiors; this year it is its lowest ranked area.
Table 1. Inconsistencies Across Purchasing Areas are Costing the OEMs
OEM
Toyota
Honda
Ford
Nissan
Chrysler
General Motors
Highest Ranked
Purchasing Area
Electrical & Electronics
Electrical & Electronics
Chassis
Body-in-White
Interior
Chassis
WRI
359
318
298
290
288
270
Lowest Ranked
Purchasing Area
Interior
Exterior
Body-in-White
Electrical & Electronics
Electrical & Electronics
Interior
WRI
276
275
212
258
216
221
WRI
Range
83
43
86
32
72
49
The German Big Three
In 2010, Planning Perspectives began studying the Big Three German automakers
with manufacturing operations in North America: BMW, Mercedes-Benz, and Volkswagen.
Some broad supplier relation trends are identifiable and interesting.
For instance, BWM dropped slightly this year (WRI® = 311 vs. 324) and now follows
Toyota in the overall supplier relations ranking of the automotive manufacturers (see chart
below).
Mercedes and Volkswagen continue to slide in the rankings with supplier relations for
both automakers dropping significantly since last year. Mercedes dropped from 289 to 227,
while VW dropped to 181 from 231. Both manufacturers trail all other OEMs. Interestingly,
the WRI rankings for the two Volkswagen operations -- VW-Puebla and VW-Chattanooga -are 187 and 177, dropping from 241 and 216, respectively.
The decrease at BMW has resulted from two decreases across the WRI® Hindrance
and Communication components, which offset a slight improvement in the Help Component.
The Mercedes and VW WRI® decreases occurred because of reductions in all five
WRI® components: Help, Communication, Hindrance, Relationship, and Profit Opportunity.
If the Japanese 3, the Detroit 3 and German 3 were combined on a consolidated
®
WRI graph as below, Toyota would rank highest of the nine automakers and VW the
lowest.
12 May 2014 2014 Annual Study News Release Page 7 of 7 About The Study: Now in its 14th year, the Annual North American Automotive OEM-Tier 1 Supplier
Working Relations Index® Study tracks supplier perceptions of working relations with their automaker
customers in which they rate the US and Japanese automakers across the six major purchasing
areas broken down into 14 commodity areas. The six purchasing areas are: body-in-white, chassis,
electrical & electronics, exterior, interior, and powertrain. The results of the study are used to
calculate the WRI® based on five key areas that contribute to collaborative supplier relations: OEM
Help, OEM Hindrance, OEM-Supplier Relationship, OEM Communication and Supplier Profit
Opportunity. These areas, in turn, are further broken down into 16 working relations variables.
This year, 411 sales persons from 362 Tier 1 suppliers – representing 1,283 buying situations
(e.g., supplying brake systems to Chrysler, tires to Toyota, seats to GM) and 56% of the OEMs’
annual buy – responded to the survey. Demographically, the supplier-respondents represent 29 of
the Top 50 North American suppliers, 43 of the Top 100 North American suppliers. For the last four
years, BMW, Mercedes Benz, and VW have also been included.
About PPI: Since 1990, PPI has specialized in developing and implementing supplier surveys for the
automotive OEMs and Tier 1 suppliers, and companies in 18 other service and manufacturing
industries worldwide, including the airframe, aircraft engine, computer, construction tool, electronics,
energy, and food industries. In 2001, PPI initiated its syndicated annual North American Automotive
OEM - Supplier Working Relations Index® Study of the Big Six US and Japanese automakers and in
2010 began tracking the US-based Big 3 German automakers as well. This annual study has been
recognized as the benchmark of supplier working relations for the automotive industry in numerous
academic research articles, as well as the Harvard Business Review and several books.
The Studies provide critical sales and financial planning information for suppliers and their
sales, marketing, and financial staffs, as well as a means by which OEMs and their purchasing staffs
can get a reality check on their working relations with suppliers. John W. Henke, Jr., Ph.D. is
president of Planning Perspectives, Inc., a Professor of Marketing at Oakland University in Rochester,
MI, and a Research Fellow at The Center for Supply Chain Management, Rutgers University, New
Brunswick, NJ. PPI is based in Birmingham, Michigan USA and can be reached at +1.248.644.7690.
Visit PPI at www.ppi1.com.
12 May 2014