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Return on Friendliness
Companies that are accessible and understanding—two aspects of friendliness—can achieve solid returns.
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Although the phrase “money on the table” would seem to apply to what’s happening in the North American auto industry when it comes to relations between the OEMs and their suppliers, that’s not exactly correct. Yes, Planning Perspectives Inc. (ppi1.com) has done another of its “North American Automotive OEM-supplier Working Relations Index Study”—the 18th that it has performed—and yes, John Henke, president of Planning Perspectives, says that there is a direct correlation between the level of goodness of those relations and financial performance.
Think of it as ROF: Return on Friendliness.
According to Henke, “Our economic model shows that if GM simply maintained its 2017 ranking rather than dropping three points this year”—it went from a score of 290 to 287—“it would have realized an additional $167 for every light vehicle manufactured and sold in North America.” In 2017 in the U.S. GM sold 3,002,241 vehicles. So had it been friendlier—or simply been as friendly as it had been in 2017—it would have made, according to Henke’s number, an additional $441,329,427.
The reason that this isn’t a matter of leaving money on the table is because that phrase comes from playing poker, which is a game of chance. There seems to be little chance in the calculations that Planning Perspectives runs. It based this year’s results on responses from 684 salespersons from 496 Tier One suppliers. That cohort represents 62 percent of the annual purchasing of the six OEMs in the study, Ford, FCA, GM, Honda, Nissan and Toyota. The group of suppliers that participated represent 44 of the top 50 North American suppliers and 77 of the top 100.
At the top of the list for 2018 there is no change in terms of the top two. Toyota is in first place, as it has been since 2011 and Honda is in second. Toyota scored 333, which is up five points, and Honda scored 313, which is down six. General Motors is in third place, with 287 points, which is, as mentioned, down three. Ford, in fourth, plummeted from 270 points in 2017 to 250. And rounding out the bottom, there is FCA in fifth, with 204, down from 218, and Nissan, showing a continued collapse, with a score of 182, down from 203.
Think, for a moment, about the delta between Toyota and Nissan: 151 points. And there is another way to slice those numbers, as the study includes ix “purchasing areas”: Body-in-White, Chassis, Electrical & Electronics, Exterior, Interior, Powertrain. So the numbers for Toyota and Nissan in those categories are, respectively, Body-in-White, 295/241; Chassis, 369/226; Electrical & Electronics, 347/209; Exterior, 343/213; Interior, 320/136; Powertrain, 316/131. Clearly some huge gaps there.
Guess which company is in last place for the “Degree to Which OEM is a Preferred Customer.” Yes, Nissan is the least preferred, at 2.89 on a five-point scale (Very Preferred, 5.0; Preferred, 4.0; Somewhat Preferred, 3.0; Ambivalent, 2.0). What may be a bit surprising is that the company with the highest score in this category isn’t Toyota. It’s Honda, with a score of 4.43, the same number it had last year. Toyota is second, at 4.39, having fallen from 4.41 in 2017.
Henke: “Poor supplier relations mean significant reductions in suppliers’ contribution to OEM profits, and with the uncertain future facing automakers in terms of technology, market dynamics and increasing global competition, each OEM is going to need all the revenue and profits it can generate.”
Arguably, that’s always been the case. But as the upward momentum of the size of the market that has been experienced over the last 10 years has slowed (not that the 17,230,436 vehicles sold in the U.S. last year [down 1.8 percent from 2016] is anything to sniff at), focusing on getting the most from one’s oft-called “supplier partners” is essential. And it is all the more critical because of the automated, connected and electrified initiatives that are underway: For one thing, much of this work is something that OEMs have traditionally not done to the extent that suppliers have, so it is probably a good thing to have smart suppliers in one’s corner so as to be able to leverage their capabilities.
This is not to say, for example, that suppliers aren’t going to work with Nissan: After all, that company sold 1,593,464 vehicles in the U.S. last year, so that is nothing to sniff at. Yet it does come down to that whole notion of which company is preferred, which company is going to get a supplier’s best team—and its best tech.
Although this may seem to be vastly trivializing what’s at stake here, the whole ROF notion may be to the point. Every OEM is in business to make money. Make no mistake of that. But companies that are accessible and understanding—two aspects of friendliness—can achieve solid returns.
Think of it as ROF: Return on Friendliness.
According to Henke, “Our economic model shows that if GM simply maintained its 2017 ranking rather than dropping three points this year”—it went from a score of 290 to 287—“it would have realized an additional $167 for every light vehicle manufactured and sold in North America.” In 2017 in the U.S. GM sold 3,002,241 vehicles. So had it been friendlier—or simply been as friendly as it had been in 2017—it would have made, according to Henke’s number, an additional $441,329,427.
The reason that this isn’t a matter of leaving money on the table is because that phrase comes from playing poker, which is a game of chance. There seems to be little chance in the calculations that Planning Perspectives runs. It based this year’s results on responses from 684 salespersons from 496 Tier One suppliers. That cohort represents 62 percent of the annual purchasing of the six OEMs in the study, Ford, FCA, GM, Honda, Nissan and Toyota. The group of suppliers that participated represent 44 of the top 50 North American suppliers and 77 of the top 100.
At the top of the list for 2018 there is no change in terms of the top two. Toyota is in first place, as it has been since 2011 and Honda is in second. Toyota scored 333, which is up five points, and Honda scored 313, which is down six. General Motors is in third place, with 287 points, which is, as mentioned, down three. Ford, in fourth, plummeted from 270 points in 2017 to 250. And rounding out the bottom, there is FCA in fifth, with 204, down from 218, and Nissan, showing a continued collapse, with a score of 182, down from 203.
Think, for a moment, about the delta between Toyota and Nissan: 151 points. And there is another way to slice those numbers, as the study includes ix “purchasing areas”: Body-in-White, Chassis, Electrical & Electronics, Exterior, Interior, Powertrain. So the numbers for Toyota and Nissan in those categories are, respectively, Body-in-White, 295/241; Chassis, 369/226; Electrical & Electronics, 347/209; Exterior, 343/213; Interior, 320/136; Powertrain, 316/131. Clearly some huge gaps there.
Guess which company is in last place for the “Degree to Which OEM is a Preferred Customer.” Yes, Nissan is the least preferred, at 2.89 on a five-point scale (Very Preferred, 5.0; Preferred, 4.0; Somewhat Preferred, 3.0; Ambivalent, 2.0). What may be a bit surprising is that the company with the highest score in this category isn’t Toyota. It’s Honda, with a score of 4.43, the same number it had last year. Toyota is second, at 4.39, having fallen from 4.41 in 2017.
Henke: “Poor supplier relations mean significant reductions in suppliers’ contribution to OEM profits, and with the uncertain future facing automakers in terms of technology, market dynamics and increasing global competition, each OEM is going to need all the revenue and profits it can generate.”
Arguably, that’s always been the case. But as the upward momentum of the size of the market that has been experienced over the last 10 years has slowed (not that the 17,230,436 vehicles sold in the U.S. last year [down 1.8 percent from 2016] is anything to sniff at), focusing on getting the most from one’s oft-called “supplier partners” is essential. And it is all the more critical because of the automated, connected and electrified initiatives that are underway: For one thing, much of this work is something that OEMs have traditionally not done to the extent that suppliers have, so it is probably a good thing to have smart suppliers in one’s corner so as to be able to leverage their capabilities.
This is not to say, for example, that suppliers aren’t going to work with Nissan: After all, that company sold 1,593,464 vehicles in the U.S. last year, so that is nothing to sniff at. Yet it does come down to that whole notion of which company is preferred, which company is going to get a supplier’s best team—and its best tech.
Although this may seem to be vastly trivializing what’s at stake here, the whole ROF notion may be to the point. Every OEM is in business to make money. Make no mistake of that. But companies that are accessible and understanding—two aspects of friendliness—can achieve solid returns.