U.S. Automakers Lose Millions Over Poor Supplier Relations

Source: Magna

It turns out being nice pays off – at least from a business standpoint. A recent study focusing on OEM-supplier relations found automakers that have strong bonds with their suppliers tend to profit more than those that don’t.

The North American Automotive - Tier 1 Supplier Working Relations Index consulted with more than 400 suppliers. It concludes that Ford, GM, Nissan and FCA US would have earned approximately $2 billion more in operating profit for 2014 had their supplier relations improved as much as Toyota’s and Honda’s during that timeframe.

"Last year we unveiled an economic model that proves a direct cause-effect relationship between an automotive OEM's supplier relations and the OEM's operating profit," said the study's author, John W. Henke Jr. "For the first time ever, it allowed us to put a dollar value on supplier’s non-price benefits – those valuable actions and practices, which along with supplier price concessions make a substantial contribution to an OEM's competitiveness."

Thanks to this economic model, Henke was able to figure out the economic value of non-price benefits and the supplier price concessions. He says that if Ford, GM, Nissan and FCA had improved 8.7 percent in their WRI, they could have generated a combined total of $2 billion in additional income (see the chart above). Meanwhile, Toyota improved its WRI by nearly 5.7 percent during the 2014 calendar year, while Honda improved by approximately 11.9 percent.

According to Henke, automakers that have strong relationships with their suppliers can reap a number of benefits. For instance, suppliers might give automakers a first look at new technologies, provide OEMs with their best staff for support or offer their best pricing.

For more information about the latest index, click here.