Working with suppliers: Ford raises its game
By: Colin Whitbread, Thursday, May 28, 2009, AutomotiveWorld.com
The news of Visteon’s Chapter 11 filing for reorganisation in the US, with Ford supporting the DIP financing to ensure continuity of supply, is an unwelcome development in the relationship between the OEM and a key supplier. However, there is now quantifiable evidence that Ford is finally becoming a more valued customer for the broader automotive supply base, a positive sign for the future.
Any discussions focused on OEM-supplier relationships rapidly begin to embrace certain words, the most common being communication, dialogue, honesty, integrity and transparency. OEMs and suppliers agree that partnerships based on such positive attributes make for an efficient and viable supply chain. Absence of these characteristics can introduce inefficiencies, uncertainties and ill-feeling which manifest themselves in poor quality, delivery disruption and unnecessary costs.
Sadly, as many surveys of OEM-supplier relationships have uncovered, while all parties agree on the positive attributes, some fail to provide more than lip-service to them. This can result in relationships that are at worst combative and at best far away from the extended enterprise or enlightened partnership concepts that have attracted so much hyperbole over the last few years. Put simply, research has shown that some OEMs are good at supplier relationships while others are not, although the reasons for these differences are often steeped in history, myth and complexity.
Senior procurement executives of OEMs judged by supplier surveys to be difficult to work with, have often expressed shock at such findings, believing their good relations with senior supplier executive counterparts to be the real picture, rather than an illusion. In reality, although the enlightened partnership approach can dominate such senior-level association, a command-and-control atmosphere may be more prevalent at more junior levels, where OEM purchasing personnel may be robustly chasing short-term price/cost targets that can only be achieved at the expense of, what should be, broader objectives.
Glossing over details, in general, Japanese OEMs, most notably Toyota and Honda have been perceived by suppliers to be the most rewarding to work with, the emphasis being on genuine and trusting long-term relationships that seek to minimise costs while generating viable returns for the supply base. In contrast, the Detroit Three have generally fared less favourably, judged to be more dictatorial, unreliable, less honest, less loyal and more penny pinching, even during a period of relatively healthy market growth. So what happens during a major recession? Do relationships deteriorate in the face of massive and erratic production cutbacks, huge financial losses and, in some cases, more than a whiff of bankruptcy? Or do some OEMs actually make progress in their relationships with suppliers in the face of extreme adversity. The latest, just-released annual North American OEM – Tier 1 Supplier Working Relations Study from Birmingham, Michigan-based Planning Perspectives, Inc. (PPI) perhaps offers some tentative first answers to these questions.
Using its Working Relations Index (WRI) to quantitatively assess how suppliers perceive their customers work with them, PPI’s latest findings appear to show that at least one of the six major North American OEMs – Ford - is taking successful strides towards rebuilding relationships with the 231 Tier 1 suppliers responding to the survey.
OEM WRI scores have a theoretical range of 0 to 500, with 500 indicating near perfect supplier relations. To suggest Ford has been an underperformer in the PPI surveys since 2002 would be something of an understatement. In the period 2002-07, Ford had a consistently poor WRI score, in the 160-170 range, only outperforming GM’s dismal performance in the same period, but actually falling to last place in 2007. The scale of this underperformance is given greater clarity when compared to Toyota’s WRI score of in excess of 400 in the 2004-07 period.
Put simply, suppliers loved working with Toyota (and, to a slightly lesser extent Honda and Nissan) but viewed Ford as an unrewarding and difficult customer. As PPI has always pointed out, such differences are more than just academic – OEMs with the best rankings receive the greatest benefit from suppliers in a number of areas, including lower costs, higher quality and innovation. Some customers become ‘more preferred’, engendering favourable treatment by suppliers.
PPI’s 2008 and 2009 surveys show Ford lifting its WRI score to 191 and 232, respectively, still below the 255 industry mean in the latest survey but comfortably ahead of an improving GM with 183 and a dismal Chrysler with 162. More importantly, by increasing its score by 43.2% in the 2007-2009 period, compared to Nissan’s -7.3% fall, Ford has closed the gap with the Japanese OEM to just 36 points, down from 141 in 2005, Ford’s worst year. Other data in the PPI survey shows that, as a result of this, suppliers’ willingness to invest in new technology for Ford increased from 2.8 (five-point scale) in 2008 to 3.2 in 2009, putting it ahead of Nissan’s score of 3.1. Similar data for profit opportunity ratings also shows a marked closing of the gap with Nissan, albeit with Toyota and Honda still some way in the distance. This evidence of better working relationships with suppliers, especially the larger ones, has to be seen as a positive for Ford and providing solid ground for further advances in the post-recession period, whenever that arrives.
As an interesting final aside, the PPI study also measures how suppliers rank working relations for six major purchasing areas within each OEM, identifying the good and not-so-good areas. In Ford’s case, its powertrain purchasing group received the highest plaudits from suppliers, with a WRI score of 255, while electrical and electronics clearly has to make improvements with a score of 192, especially as Honda’s score in the same area was a highly impressive 373 – almost at a daily OEM/supplier group-hug level. In contrast, Chrysler’s body-in-white purchasing team secured a truly lamentable score of just 89, suggesting relations bordering on the glacial. As PPI’s president and CEO John Henke, Jnr., points out: “This indicates the importance of having performance metrics in place to drive the desired behaviour of these individuals if you hope to improve your supplier working relations.” Seemingly a lesson Ford has now learnt.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Published on Thursday, May 28, 2009
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