The annual study released by Planning Perspectives aims to underscore how important it is to build strong relationships between suppliers, and customers. Specifically, this study analyzes automakers, and their willingness to work with their suppliers.
While some Japanese brands rank among the highest (Honda and Toyota), General Motors was seen as one of the worst customers suppliers to deal with, according to a report from The Detroit Free Press.
John Henke, CEO of Planning Perspectives, details how the economic model tied to the study can measure the link between positive supplier relations and an automaker’s operating profit. The measure of supplier relations is what Henke calls the Working Relationship Index. Toyota and Honda improved an average of 8.7% over 2014.
“If supplier relations at Ford, Nissan, Chrysler and GM also improved by 8.7% they each would have realized significantly higher operating income — an estimate $2.02 billion collectively.”
As you could imagine, automakers want a suppliers’ best technology at the lowest possible price, an adverse relationship if we’ve ever known one. But pressure from investors and management force purchasing departments, such as GM’s, to pay less even as production increases.
Henke is quick to point out that it’s not always about securing the lowest price, however. Sometimes a supplier will hold back on its best engineering efforts, or even tuck away its newest innovation, due to that adverse relationship we mentioned.
To remedy this, General Motors has begun offering 10 year contracts with suppliers to ensure a commitment. 10 years is a long time, sometimes spanning two generations of a particular vehicle.
“Longer-term contracts can make a difference if they also come with suppliers being treated in a more trustworthy way,” Henke said.
As the report points out, the benefits to automakers of greater trust include suppliers’ willingness to share their newest and best technology and to provide stronger support. You can’t have your cake and eat it too.
“Each contract between an automaker and supplier specifies what’s expected of the supplier,” Henke said. “If relations are strong the supplier is more than willing to go beyond that.”
Comments
How many financially sound suppliers tanked with the GM bankruptcy ?? Is the memory of it , having any impact on those in the industry who will even supply to GM anymore ? It’s reputation was so bad that it was in last place of the top six auto manufacturers rating….even replacing Chrysler who was in the bottom previously . This is the auto giant who in the 50’s , 60’s 70’s and even to mid 80’s that set the marketplace for sales and quality . How could anyone ever adequately forecast what was to befall this corporation ? Make no mistake , having sources for quality components is a huge issue and one GM has yet to master , in my opinion . It has thousands of purchasing agents who interact with potential and contracted suppliers , so what message , plan are they bringing to the bargaining tables ,,,,,what is different than before ??
GM wants champaign parts with a beer price .
GM’s like the world before Gallileo, when people thought the universe revolved around the earth, instead of the sun.
Sorry, GM, it’s not 1963 anymore. The universe doesn’t revolve around you.
You’re not the only game in town.