connection between vehicle quality and automaker's relationship with its suppliers
07-12-2002, 10:50 AM
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Cost Drivers!!!!
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connection between vehicle quality and automaker's relationship with its suppliers
http://www.canadiandriver.com/news/020711-2.htm
www.vtec.net
Study suggests connection between vehicle quality and automaker's relationship with its suppliers
Birmingham, Michigan - Planning Perspectives Inc. (PPI), a company that conducts in-depth survey of suppliers for the major automobile companies in North America, has released a survey that suggests a connection between vehicle quality and an automaker's relationship with its suppliers.
PPIÕs 2002 OEM Benchmark Survey, conducted in May-June of this year, is based on the responses of 279 Tier 1 suppliers, 56 of whom are among the Top 100 North American suppliers. The annual sales of the suppliers who participated in the Study represent approximately 47% of the annual buy of the six major North American OEMs (Chrysler, Ford, General Motors, Honda, Nissan, and Toyota) who were benchmarked in the study.
The survey found that Toyota and Honda continue to set the standard for supplier-OEM working relationships. Important findings included:
Suppliers rank Honda and Toyota as the best OEMs with whom to conduct business
Honda and Toyota balance quality with price when working with their suppliers while the domestic OEMs stress price significantly more than quality
Detroit's Big Three have practices that hinder the suppliers from doing their best job in meeting the OEMs' price reduction and quality improvement expectations
Domestic OEMs go about demanding price concessions from their suppliers in a manner that shows little concern for the suppliers' economic viability or supplier working relationships, while Honda and Toyota price reduction demands are conducted in a manner that demonstrates concern for both OEMs and suppliers.
A major outcome of the study is the supplier ranking of the OEMs as a place to conduct business. The overall ranking of the OEMs shows that suppliers clearly consider Toyota and Honda as the best OEMs with whom to conduct business by a wide margin over the three domestic OEMs. General Motors, Ford, and Chrysler had scores of 460, 464, and 477 respectively, while Toyota and Honda scored 30 percent higher at 610 and 604. Nissan was in the middle with a ranking of 532, well below Toyota and Honda, but over 10% better than the domestic OEM rankings.
A key component in the working relationship ranking was the trust suppliers have of the OEMs. Suppliers reported that they have little trust of General Motors, Ford, and Chrysler which scored 2.12, 2.21, and 2.26, respectively, while supplier trust of Toyota and Honda was 50% above that of the domestic OEMs at 3.40 and 3.32, respectively.
In addition, suppliers reported they felt Toyota and Honda communicate with them much more openly and honestly, on a more timely basis, and with more information than do the domestic OEMs. In addition, suppliers reported that they receive more help from Toyota and Honda to reduce their costs and improve their quality than they receive from any of the domestic OEMs.
According to the survey, Detroit's Big Three hinder suppliers from doing their best job more than do Toyota or Honda. For instance, all OEMs have late engineering changes. However, excessive and late engineering changes that hurt suppliers' ability to develop the product on time and meet quality goals occur significantly more at the domestic OEMs than at either Toyota or Honda.
In addition, suppliers experience significantly more conflicting objectives across functional areas at the three domestic OEMs than they do at the three Japanese auto makers. The result is that it is much more difficult for suppliers to the domestic OEMs to achieve the OEMs' sourcing objectives than it is at the three Japanese companies.
Finally, Toyota and Honda also provide greater opportunities for their suppliers to make a profit than do the domestic OEMs. Suppliers report that both Toyota and Honda are significantly more willing to cover their sunk costs when programs are delayed or cancelled than are the domestic OEMs. Also, suppliers said that the domestic OEMs show virtually no concern that they are able to maintain their profit margins when giving the OEMs price reductions. This is not the case with Toyota and Honda, both of whom are significantly more concerned about their suppliers' profit margins, according to the study.
All OEMs are placing considerable pressure on their supply base for price reductions and it is widely recognized that price concessions given to the OEMs impact the long-term financial viability of OEMs' suppliers. However, suppliers report that the price concessions they gave Honda, Nissan, and Toyota resulted from a balance of productivity improvements and givebacks (i.e., a simple cost-down that decreased their profit margin). However, price concessions at the domestic OEMs were comprised of approximately one-third (36%) productivity improvements and two-thirds (64%) givebacks.
The survey also revealed a basic difference is why suppliers gave price concessions to the OEMs. At the Big Three domestic OEMs, the two primary reasons why suppliers said they gave price concessions were "aggressive price reduction pressure" and "threats to reduce their current business." While both of these factors also were experienced somewhat by suppliers at Toyota and Honda, it was to a much lesser extent. On the other hand, three times as many suppliers reported the price reduction concession they gave to Toyota and Honda was the result of "loyalty" to a long-time customer.
The suppliers' experiences in working with the six major North American OEMs indicate that Toyota's and Honda's approach to working with their supply base has clearly paid off for them. The 2002 OEM Benchmark Survey identifies three important corporate cultural reasons for this:
First, Toyota and Honda are concerned with the long-term viability and economic success of their supply base. Both OEMs take a more moderate approach to price reductions with their suppliers and are able to do so because their internal efforts to reduce costs are far more effective than are similar efforts by the domestic OEMs.
Second, when Toyota and Honda establish policies and procedures for dealing with suppliers, they implement them with more consistency over a longer period of time. This pattern of consistency is best exemplified by the level of trust suppliers have had for both OEMs over the past 12 years.
Third, Toyota and Honda understand the dynamics of effective supplier-OEM working relationships, and these dynamics are clearly understood throughout their companies and are experienced by their suppliers
www.vtec.net
Study suggests connection between vehicle quality and automaker's relationship with its suppliers
Birmingham, Michigan - Planning Perspectives Inc. (PPI), a company that conducts in-depth survey of suppliers for the major automobile companies in North America, has released a survey that suggests a connection between vehicle quality and an automaker's relationship with its suppliers.
PPIÕs 2002 OEM Benchmark Survey, conducted in May-June of this year, is based on the responses of 279 Tier 1 suppliers, 56 of whom are among the Top 100 North American suppliers. The annual sales of the suppliers who participated in the Study represent approximately 47% of the annual buy of the six major North American OEMs (Chrysler, Ford, General Motors, Honda, Nissan, and Toyota) who were benchmarked in the study.
The survey found that Toyota and Honda continue to set the standard for supplier-OEM working relationships. Important findings included:
Suppliers rank Honda and Toyota as the best OEMs with whom to conduct business
Honda and Toyota balance quality with price when working with their suppliers while the domestic OEMs stress price significantly more than quality
Detroit's Big Three have practices that hinder the suppliers from doing their best job in meeting the OEMs' price reduction and quality improvement expectations
Domestic OEMs go about demanding price concessions from their suppliers in a manner that shows little concern for the suppliers' economic viability or supplier working relationships, while Honda and Toyota price reduction demands are conducted in a manner that demonstrates concern for both OEMs and suppliers.
A major outcome of the study is the supplier ranking of the OEMs as a place to conduct business. The overall ranking of the OEMs shows that suppliers clearly consider Toyota and Honda as the best OEMs with whom to conduct business by a wide margin over the three domestic OEMs. General Motors, Ford, and Chrysler had scores of 460, 464, and 477 respectively, while Toyota and Honda scored 30 percent higher at 610 and 604. Nissan was in the middle with a ranking of 532, well below Toyota and Honda, but over 10% better than the domestic OEM rankings.
A key component in the working relationship ranking was the trust suppliers have of the OEMs. Suppliers reported that they have little trust of General Motors, Ford, and Chrysler which scored 2.12, 2.21, and 2.26, respectively, while supplier trust of Toyota and Honda was 50% above that of the domestic OEMs at 3.40 and 3.32, respectively.
In addition, suppliers reported they felt Toyota and Honda communicate with them much more openly and honestly, on a more timely basis, and with more information than do the domestic OEMs. In addition, suppliers reported that they receive more help from Toyota and Honda to reduce their costs and improve their quality than they receive from any of the domestic OEMs.
According to the survey, Detroit's Big Three hinder suppliers from doing their best job more than do Toyota or Honda. For instance, all OEMs have late engineering changes. However, excessive and late engineering changes that hurt suppliers' ability to develop the product on time and meet quality goals occur significantly more at the domestic OEMs than at either Toyota or Honda.
In addition, suppliers experience significantly more conflicting objectives across functional areas at the three domestic OEMs than they do at the three Japanese auto makers. The result is that it is much more difficult for suppliers to the domestic OEMs to achieve the OEMs' sourcing objectives than it is at the three Japanese companies.
Finally, Toyota and Honda also provide greater opportunities for their suppliers to make a profit than do the domestic OEMs. Suppliers report that both Toyota and Honda are significantly more willing to cover their sunk costs when programs are delayed or cancelled than are the domestic OEMs. Also, suppliers said that the domestic OEMs show virtually no concern that they are able to maintain their profit margins when giving the OEMs price reductions. This is not the case with Toyota and Honda, both of whom are significantly more concerned about their suppliers' profit margins, according to the study.
All OEMs are placing considerable pressure on their supply base for price reductions and it is widely recognized that price concessions given to the OEMs impact the long-term financial viability of OEMs' suppliers. However, suppliers report that the price concessions they gave Honda, Nissan, and Toyota resulted from a balance of productivity improvements and givebacks (i.e., a simple cost-down that decreased their profit margin). However, price concessions at the domestic OEMs were comprised of approximately one-third (36%) productivity improvements and two-thirds (64%) givebacks.
The survey also revealed a basic difference is why suppliers gave price concessions to the OEMs. At the Big Three domestic OEMs, the two primary reasons why suppliers said they gave price concessions were "aggressive price reduction pressure" and "threats to reduce their current business." While both of these factors also were experienced somewhat by suppliers at Toyota and Honda, it was to a much lesser extent. On the other hand, three times as many suppliers reported the price reduction concession they gave to Toyota and Honda was the result of "loyalty" to a long-time customer.
The suppliers' experiences in working with the six major North American OEMs indicate that Toyota's and Honda's approach to working with their supply base has clearly paid off for them. The 2002 OEM Benchmark Survey identifies three important corporate cultural reasons for this:
First, Toyota and Honda are concerned with the long-term viability and economic success of their supply base. Both OEMs take a more moderate approach to price reductions with their suppliers and are able to do so because their internal efforts to reduce costs are far more effective than are similar efforts by the domestic OEMs.
Second, when Toyota and Honda establish policies and procedures for dealing with suppliers, they implement them with more consistency over a longer period of time. This pattern of consistency is best exemplified by the level of trust suppliers have had for both OEMs over the past 12 years.
Third, Toyota and Honda understand the dynamics of effective supplier-OEM working relationships, and these dynamics are clearly understood throughout their companies and are experienced by their suppliers
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