From Suppliers to Partners in Innovation

From Suppliers to Partners in Innovation

20/06/2019 Jon Chang Category: Blog

Leading auto makers have been vying for the top spot – not in sales or business growth, but in supplier relations. As the auto industry moves into a new age of innovation, OEMs are realizing that they won't get where they want to be unless their suppliers want to work with them.

Every year, leading auto makers wait to be ranked by a major industry study. And for once, it doesn't matter how many vehicles they've sold or how much they've grown through the year. What matters is how well they've maintained their supplier relations.

The Working Relations Index, founded by John Henke's Planning Perspectives Inc. (recently acquired by Plante Moran), has been evaluating Toyota, Honda, General Motors, Ford, Nissan and Fiat-Chrysler on the strength of their supplier relations since 2001. For the last eight years, the top two spots have gone to Toyota and Honda respectively. 2018's results place GM third and Ford fourth on the list. FCA and Nissan finished a distant fifth and sixth last year.

Specific scores aside, the importance of healthy relationships with suppliers has been recognized by most original equipment manufacturers in the auto industry.

"These supplier relationships are more than a manufacturer/supplier relationship," said Pam Heminger, vice president at Honda Manufacturing Inc. "It's about having a partnership. Having a good partnership will allow us to continue to have open and transparent communication, which is the foundation of our relationship."

Hau Thai-Tang, executive vice president of product development and purchasing at Ford, has a similar opinion. "We recognize that 75 percent of our value-add is provided by our suppliers," he said. "I think it's a good relationship, one that's built on trust and co-dependency for success."

Communicating well:

With suppliers representing up to 75 percent of an OEM's cost structure and 50 percent of a vehicle's innovation, their contribution plays a vital role in meeting customer expectations. All top-ranked OEMs agree with this. GM in particular can vouch for it.

GM's performance in the Working Relations Index has improved dramatically since 2015, when Steve Kiefer took over as senior vice president of the auto maker's global purchasing and supply chain. Right from the get-go, Kiefer set his sights on establishing open and transparent communication with suppliers.

"When I joined GM, I was pretty openly critical with our global purchasing and supply team on some things I saw with other OEMs that I thought could improve the relationships we had with our suppliers," Kiefer shared.

Among the processes that Kiefer put in place to improve communication with suppliers was a strategic supplier engagement scorecard that brings suppliers up to speed on what business and behavior attributes GM is looking for. This scorecard expresses GM's expectations from its partners, and allows each supplier to see how they're doing in terms of meeting those expectations.

And this system hasn't just strengthened GM's relations with its suppliers. As an added perk, it has also revealed interesting insights on how to reduce cost by eliminating waste in the value stream and make both the OEM and its suppliers more profitable.

Ford has also found a link between good communication with suppliers and profitability across the board. According to Thai-Tang, suppliers tend to be interested in doing business with a partner who is fair, consistent, predictable, and gives them opportunities for business growth.

Robert Young, Toyota's vice president of purchasing, supplier engineering and cost planning, said that while the supplier business is "complex and challenging", communication, collaboration and a consistent approach can help suppliers understand and deliver what's needed from them.

"We try to have a level of consistency with how we treat our supplier partners," Young shared. "Based on their importance to our overall business, we must treat them with respect and we must work with them to solve problems."

For Honda, the principle remains the same – but with an added focus on being proactive and innovative. Talking about how Honda has always treated its supply base as part of its manufacturing lines, Heminger said: "We want our suppliers to want to have a relationship with us. Working proactively with them is something we're committed to every day, from me to our junior associates." 

Doing the legwork together:

Of course, when it comes to the nuts and bolts of running a successful partnership with suppliers, problems are bound to come up every so often. For these, the top four OEMs like to make sure their supply base has all the assistance they need to find a timely solution.

GM sends out in-house experts as well as external consultants to help its suppliers. Ford has set up a technical assistance team specifically for instances where suppliers are struggling to meet the requirements of a major launch. Ford's suppliers also get financial help when they're in a crunch, and access to technologies they wouldn't have been able to afford on their own.

Toyota believes in having patience with its suppliers, understanding that they can't always be perfect, and collaborating with them when their performance takes a dip. Honda also steps in and tries to understand the situations that may be leading to a supplier's problem, and then sends out associates to make sure it can be solved as quickly as possible.

Helping suppliers out of a problem is important, but all four auto makers have also been looking at ways to prevent problems from arising in the first place. And in an industry that's on the brink of transforming completely, the first thing that OEMs must do is bring their suppliers on board even before a design takes shape.

Which is what most of them are already doing. Young said that Toyota has been getting suppliers involved as early as 24 months before conceptualizing an upcoming vehicle. This way, suppliers are always up to speed on a project's progress and have fewer constraints to work with.

Early involvement makes sure designs move into production quickly, and any parts produced remain cost-effective for the supplier. But more than anything else, it ensures that innovation isn't compromised at any stage of the vehicle design and manufacturing process.

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