2011 Study SAA – OESA Presentation
23 May 2011
11th Annual North American
Automotive OEM - Tier 1 Supplier
Working Relations Study
OEM Purchasing Summit
23 May 2011
John W. Henke, Jr., Ph.D.
Planning Perspectives, Inc. Professor of Marketing
Birmingham, MI
Oakland University
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2011 N. A. Automotive
- Tier 1 Supplier Study
1
Basis of Participants' Answers
Survey Characteristics
OEM: Chrysler Ford
Purchasing
Areas
GM
Honda
Nissan Toyota
Commodity Areas
Body-in-White
1) Body-in-white, stampings, frames
Chassis
2) Fuel handling, exhaust systems, cooling systems, & components
3) Brake systems, steering, suspensions
4) Tires, wheels, and mechanisms
Electronics &
Electrical
5) Electronics, I.C.s, PC boards, ECUs, sensors, wiring, sensors
6) Audio systems, safety systems, security systems
Exterior
7) Body panels, exterior ornamentation, fascias, sealing
8) Exterior lighting, mirrors, glass, wiper systems, latches
Interior
9) Seat systems, restraint systems, airbags
10) IPs, consoles, interior trim, headliners, carpeting, matting
11) Heating, ventilation, A/C
Powertrain
12) Engines and engine components
13) Transmissions and transmission components
14) Axles, traction systems, & components
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2011 N. A. Automotive
- Tier 1 Supplier Study
2
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2011 Study SAA – OESA Presentation
23 May 2011
2011 Survey Participants
Survey Characteristics
• Time Frame: Early-March to Mid-April
• Internet-Based
• 540 sales personnel
• 415 Tier 1 suppliers
–
–
–
–
37 N.A. Top 50 suppliers
63 N.A. Top 100 suppliers
80 N.A. Top 150 suppliers
2010 annual N.A. sales equals 63% of six OEMs‘ annual buy
• 1984 buying situations (OEM – Commodity Area
combinations)
• Anonymous and confidential
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2011 N. A. Automotive
- Tier 1 Supplier Study
OEM – Supplier
Working Relations
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2011 N. A. Automotive
- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
Buyer – Supplier
Working Relations Index™
Working Relations Index
Buyer – Supplier Working Relations
Very Poor
Adequate
Very Poor - Poor
0
100
200
Adversarial
Limited & Questionable
300
Relationship
Buyer
Communication
Very Good
Good – Very Good
400
Mutually Trusting
Open & Honest
Less
Buyer Help
More
A Lot
Buyer Hindrance
Little
Smaller
Supplier
Profit Opportunity
500
Greater
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2011 N. A. Automotive
- Tier 1 Supplier Study
16
OEM – Supplier Working Relations
Components
Buyer – Supplier
Working Relations Index™
Working Relations Variables
Relationship
1) Supplier trust of OEM
2) Supplier perception of working relations with OEM
OEM
Communication
3) OEM open and honest communication with suppliers
4) OEM communicates timely information
5) OEM communicates adequate amounts of information
OEM Help
6) Help OEM gives to suppliers to reduce costs
7) Help OEM gives to suppliers to improve quality
OEM Hindrance
8) OEM late/excessive engineering changes (reverse measure)
9) Conflicting objectives across OEM functional areas (reverse measure)
10) Supplier given flexibility to meet piece price/tooling cost objectives
11) Supplier involvement in OEM product development process
Supplier
Profit
Opportunity
12)
13)
14)
15)
16)
17)
OEM shares savings from suppliers' piece price cost reduction proposals
OEM shares savings from suppliers' value chain cost reduction proposals
OEM rewards high performing suppliers with new/continued business
OEM covers sunk costs on cancelled or delayed programs
OEM concern for supplier profit margins when asking price reductions
Suppliers' opportunity to make acceptable return over long term
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2011 N. A. Automotive
- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
OEM – Supplier
Working Relations Index™
Working Relations Index™
GOOD–VERY GOOD
ADEQUATE
415
415
409
407
400
375
349
368
340
359
334
316
314
300
367
380
384
300
298
302
297
327
339
330
199
196
161
167
161
163
156
247
236
221
228
187
191
186
177
271
249
218
175
264
268
253
232
200
309
289
259
227
VERY POOR–POOR
OEM – Supplier Working Relations
500
174
157
163
174
161
162
150
183
162
131
114
100
2002
2003
2004
2005
2006
2007
2008
2009
2010
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2011
2011 N. A. Automotive
- Tier 1 Supplier Study
7
Very Poor–Poor Supplier Working
Relations with Each OEM
Working Relations Index™
100%
2009
51%
48%
44%
50%
57%
45%
52%
60%
59%
68%
71%
2011
56%
29%
27%
25%
21%
30%
40%
21%
Percent of Suppliers
80%
76%
2010
20%
0%
C
GM
F
N
H
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- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
Good–Very Good Supplier Working
Relations with Each OEM
Working Relations Index™
100%
2009
2010
2011
Percent of Suppliers
80%
45%
47%
47%
41%
51%
49%
60%
26%
28%
20%
15%
19%
21%
3%
8%
20%
7%
16%
18%
28%
40%
0%
C
GM
F
N
H
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T
2011 N. A. Automotive
- Tier 1 Supplier Study
9
Supplier Preference of OEM
as a Customer
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- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
Degree to Which OEM is
a Preferred Customer
Supplier Preferred Customer
Most Preferred
(6.0)
2009
2010
4.6
4.5
4.6
4.8
3.7
3.8
3.7
3.8
3.2
3.6
Preferred
(4.0)
3.8
4.1
4.3
4.4
4.7
Very Preferred
(5.0)
2.9
3.0
Somewhat
Preferred
(3.0)
2.6
Customer Preference
2011
Ambivalent
(2.0)
Would Prefer Not
Doing Business
With Them
(1.0)
C
GM
F
N
H
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2011 N. A. Automotive
- Tier 1 Supplier Study
11
Suppliers Who Prefer Not Doing
Business with OEM/Ambivalent
Supplier Preferred Customer
2009
100%
2010
2011
54%
41%
8%
5%
10%
5%
5%
9%
21%
20%
14%
14%
19%
20%
14%
21%
31%
40%
21%
60%
45%
Percent Of Suppliers
80%
0%
C
GM
F
N
H
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- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
Supplier Preferred Customer
23 May 2011
Suppliers Who Consider OEM to be
Very Preferred-Most Preferred Customer
2009
100%
2010
2011
56%
54%
48%
31%
28%
25%
28%
5%
14%
20%
12%
33%
40%
28%
41%
56%
67%
61%
50%
60%
13%
Percent Of Suppliers
80%
0%
C
GM
F
N
H
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2011 N. A. Automotive
- Tier 1 Supplier Study
13
Why should an OEM care
about supplier relations?
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- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
Economic Benefits Realized by Buyers from
Trusting Supplier Working Relations
Buyer Integration Benefits
- Greater speed to market
- Increased Supplier investments specific to Buyer
needs
- Reduced/minimal Supplier opportunistic behavior
- Increased Supplier commitment
- Increased patents
- Increased Supplier involvement in Buyer new
product development
- Increased and improved mutual communication and
information exchange
- Reduced adversarial activities; increased cooperation
Buyer Operational Benefits
- Reduced number of purchasing agents
- Improved Just-in-Time performance
- Reduced supply base
- Reduced WIP and finished goods inventories
- Reduced cycle times
- Reduced supplier response times
- Improved quality
- Increased Supplier new technology sharing
- Improved delivery performance
- Increased competitiveness
- Supplier support of best personnel and resources
- Increased Supplier open and honest communication
Buyer Financial Benefits
- Increased Supplier R&D activities related to Buyer
needs
- Supplier conducts research on Buyer end-customers
- Reduced transaction costs
- Lower cost of goods
- Increased profit margins and profits
- Greater Supplier price concessions
- Increased ROI
- Increased NBIT
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2011 N. A. Automotive
- Tier 1 Supplier Study
15
Important Working Relations
Changes Impacting Both OEMs
and Suppliers
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2011 N. A. Automotive
- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
Excessive/Late OEM Engineering Changes:
Hurt Ability to Develop Product on Time
OEM Hindrance
Great
2009
2.7
2.8
2.7
(3.00)
2.7
3.0
2.9
Some
3.0
3.2
F
3.1
GM
3.3
3.4
3.2
3.4
3.5
2011
3.2
3.4
2010
3.3
Extent of Engineering Changes
3.6
(4.00)
Little
(2.00)
Very
little
(1.00)
C
N
H
T
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2011 N. A. Automotive
- Tier 1 Supplier Study
17
Excessive/Late OEM Engineering Changes:
Hurt Ability to Meet Quality Targets
OEM Hindrance
Great
2009
(4.00)
2.6
2.6
2.5
2.8
2.8
2.6
2.8
2.7
2.7
3.0
3.0
3.1
3.0
2.9
(3.00)
2.9
Some
2.9
3.2
2011
2.9
Extent of Engineering Changes
2010
Little
(2.00)
Very
little
(1.00)
C
GM
F
N
H
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- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
Supplier Trust of OEMs
OEM – Supplier Working Relations
Very
Great
(5.00)
2009
2010
2011
3.5
3.5
3.5
3.4
2.9
2.9
2.9
3.1
3.1
2.8
2.3
2.5
2.7
2.7
(3.00)
2.8
Some
2.1
Supplier Trust Of OEM
3.7
(4.00)
3.7
Great
Little
(2.00)
Very
little
C
(1.00)
GM
F
N
H
T
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2011 N. A. Automotive
- Tier 1 Supplier Study
19
OEM Confidential Treatment of Supplier
Proprietary Information/Intellectual Property
OEM Hindrance
Non-WRI
3.5
2011
3.3
3.2
3.1
3.2
3.1
2.8
2.9
3.0
3.0
2.9
(3.00)
2.6
2.6
OEM Treatment
Some
3.6
3.6
2010
3.7
2009
3.5
(4.00)
3.4
Great
Little
(2.00)
Very
little
(1.00)
C
GM
F
N
H
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- Tier 1 Supplier Study
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H
T
2.9
Some
2.5
2.6
(3.00)
2.5
Terms and Conditions Fair
(4.00)
3.1
Great
OEM Ts and Cs Concerning Supplier Proprietary
Information and Intellectual Property Fair and
Equitable
3.1
OEM Hindrance
Non-WRI
23 May 2011
C
GM
Little
(2.00)
Very
little
(1.00)
F
N
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2011 N. A. Automotive
- Tier 1 Supplier Study
21
OEM Price Pressures
and
Supplier Concessions
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- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
OEM Pressure on Suppliers
to Reduce Prices
Cost & Quality Pressures
Very
Great
2009
(5.00)
OEM Pressure
3.9
3.9
3.7
3.9
3.7
3.8
4.0
4.0
3.9
3.9
3.9
4.1
4.1
3.8
(4.00)
2011
3.9
3.9
Great
3.8
4.2
2010
Some
(3.00)
Little
(2.00)
Very
little
(1.00)
C
GM
F
N
H
T
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2011 N. A. Automotive
- Tier 1 Supplier Study
23
OEM Covers Sunk Costs When Programs
are Delayed, Cancelled, Don’t Meet Volumes
Supplier Profit Opportunity
Great
2009
(4.00)
2010
Some
1.6
2.4
2.4
2.4
2.3
2.0
2.1
1.9
1.6
1.7
(2.00)
1.8
1.9
2.0
Little
2.2
2.1
2.3
2.5
(3.00)
1.9
OEM Coverage
2011
Very
little
(1.00)
C
GM
F
N
H
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- Tier 1 Supplier Study
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2011 Study SAA – OESA Presentation
23 May 2011
OEM Concern of Supplier Profit Margins
When Asking for Price Reductions
Supplier Profit Opportunity
Great
2009
(4.00)
2010
2011
2.0
1.9
1.8
2.6
2.6
2.6
2.6
1.6
1.4
1.4
1.7
1.8
(2.00)
1.9
Little
2.0
2.2
2.5
2.6
(3.00)
1.7
OEM Concern
Some
Very
little
(1.00)
C
GM
F
N
H
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2011 N. A. Automotive
- Tier 1 Supplier Study
25
Most Important Reason for Price Concession:
OEM threat of reduced business/Fear of OEM retaliation
Cost & Quality
Supplier
Price Concessions
80%
2008
2009
2010
43%
4%
10%
8%
5%
14%
8%
8%
12%
22%
16%
21%
16%
21%
17%
20%
23%
19%
24%
28%
29%
34%
36%
37%
40%
31%
Percent of Suppliers
2011
60%
0%
C
GM
F
N
H
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- Tier 1 Supplier Study
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23 May 2011
OEM Purchasing Areas
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- Tier 1 Supplier Study
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TABLE 2. 2011 High - Low Purchasing Area WRIs for Each OEM
Highest Ranked
OEM
Lowest Ranked
Purchasing Area
WRI™
Purchasing Area
Chrysler
Interior
234
Body-in-White
193
General Motors
Exterior
264
Interior
204
Nissan
Powertrain
290
Interior
208
Ford
Electrical & Electronics
289
Interior
237
Honda
Electrical & Electronics
336
Body-in-White
271
Toyota
Powertrain
358
Exterior
290
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WRI™
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- Tier 1 Supplier Study
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23 May 2011
Impact of the OEM “Buyer”
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- Tier 1 Supplier Study
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Buyer Actively Working Toward Building
More Trusting Supplier Working Relations
Supplier Working Relations
2.8
2.7
7
8
9
10
11
12
13
2.0
2.3
2.8
6
2.6
2.8
5
2.6
2.8
4
2.8
3
2.8
(3.00)
2.9
Some
2.9
Extent of Working
3.3
(4.00)
3.7
Great
Little
(2.00)
Very
little
(1.00)
1
2
14
15
OEM Commodity Area
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23 May 2011
Purchasing Agent Impact on
Supplier Trust
PPI Research Studies
Purchasing Agent
Knowledge,
Skills, Communication
 Commercial knowledge
 Product technical knowledge
 Engineering/manufacturing
process knowledge
 Knowledge of supplier’s:
- products
- capabilities
Purchasing Agent
Professional
Knowledge
 Strives for mutually equitable
solutions
 Supplier’s advocate with other
functional areas
 Considers supplier’s commercial
& financial interests
Purchasing Agent
Fairness Toward
Supplier
 Technology roadmap
 Purchasing strategy for supplier
products
 Supplier’s role in long-term
purchasing strategy
 Innovation/new technologies
importance
 Various supplier-related programs
Purchasing Agent
Strategic
Communication
Purchasing Agent
Impact on Supplier Trust
Supplier Intention for
Future Transactions
 Respectful of supplier personnel
 High integrity
 Overall trustworthy
Supplier Trust
of
Purchasing Agent
Supplier Trust
of
Customer
Customer
of
Choice
 Treats supplier as valued
 Lives up to the spirit of its commitments
 Fair in dealing with supplier
 Overall supplier trust of buyer firm
Journal of Operations Management, May 2011
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2011 N. A. Automotive
- Tier 1 Supplier Study
Supplier Reciprocal
Behavior
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23 May 2011
Supplier Willingness to Invest in New
Technology in Anticipation of New Business
Supplier Actions
Very Great
(5.00)
2009
3.8
3.7
3.4
3.3
3.1
3.2
3.7
3.9
3.8
2.7
(3.00)
2.8
Some
3.1
3.2
3.4
3.4
3.6
(4.00)
3.8
2011
Great
2.4
Supplier Willingness to Invest
2010
Little
(2.00)
Very
little
(1.00)
C
GM
F
N
H
T
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These materials may not be used or copied for any commercial or academic purpose outside of your firm without written permission of PPI. OEM
2011 N. A. Automotive
- Tier 1 Supplier Study
33
Supplier Willingness to Share
New Technology Without Assurance of a P.O.
Supplier Actions
Very Great
(5.00)
2009
2010
3.3
3.2
3.2
3.2
3.3
3.0
2.8
2.8
2.9
2.8
2.5
2.5
2.3
2.6
2.8
(3.00)
2.7
Some
3.2
(4.00)
2.2
Supplier Willingness to Share
2011
Great
Little
(2.00)
Very
little
(1.00)
C
GM
F
N
H
Copyright© 2011 Planning Perspectives, Inc. All Rights Reserved.
These materials may not be used or copied for any commercial or academic purpose outside of your firm without written permission of PPI. OEM
T
2011 N. A. Automotive
- Tier 1 Supplier Study
34
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CONFIDENTIAL
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These materials may not be copied for any commercial or academic purpose outside of your firm without written permission of PPI.
2011 Study SAA – OESA Presentation
23 May 2011
Supplier Involvement:
Increasing Supplier Innovation
PPI Research Studies
Journal of Operations Management, Nov/Dec 2009
MIT Sloan Management Review , Winter 2010
Cooperation
- Early product dev.
involvement
- Effective use of
supplier skills
Buyer Supplier
Involvement
Innovation
- Open and honest
communication
- Timely information
- Adequate information
- Help reduce costs
- Help improve quality
- Flexibility to meet
cost objectives
Supplier’s
Willingness
to Invest/Share
Innovation
Buyer
Communication
Buyer
Assistance
- Willingness to invest
in new technology
- Willingness to share
new technology
Moderating
Effect
Relational
Stress
Competition
- Conflicting objectives across
functional areas
- Excessive/late engineering changes
- Price reduction pressure
Copyright© 2011 Planning Perspectives, Inc. All Rights Reserved.
These materials may not be used or copied for any commercial or academic purpose outside of your firm without written permission of PPI. OEM
2011 N. A. Automotive
- Tier 1 Supplier Study
Now Come the
German OEMs
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2011 N. A. Automotive
- Tier 1 Supplier Study
36
Planning Perspectives, Inc.
CONFIDENTIAL
Page 18 of 19
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These materials may not be copied for any commercial or academic purpose outside of your firm without written permission of PPI.
2011 Study SAA – OESA Presentation
23 May 2011
2011 OEM – Supplier
Working Relations Index™
Working Relations Index
GOOD–VERY GOOD
ADEQUATE
400
323
327
328
309
300
271
257
236
221
VERY POOR–POOR
OEM – Supplier Working Relations
500
247
200
100
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2011 N. A. Automotive
- Tier 1 Supplier Study
37
11th Annual North American
Automotive OEM - Tier 1 Supplier
Working Relations Study
OEM Purchasing Summit
23 May 2011
John W. Henke, Jr., Ph.D.
Planning Perspectives, Inc. Professor of Marketing
Birmingham, MI
Oakland University
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2011 N. A. Automotive
- Tier 1 Supplier Study
38
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CONFIDENTIAL
Page 19 of 19
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