The Importance of Suppliers & the Future

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“Our long-term plan underscores the commitment we have to our One Ford plan, while accelerating our pace of progress, delivering product excellence and driving innovation in all areas of our business,” said Mark Fields, Ford president and CEO, in a presentation to investors at the end of September. Fields went on to say, “We remain completely focused on offering customers the freshest lineup of world-class vehicles to meet their needs.”

And they feel that by doing so, they’re going to be making some serious strides in the global market by 2020, with its annual global sales growing on the order of 45%+ to some 9.4 million.  What’s more, while doing so, they’re going to improve their automotive operating margin, getting to some 8%.

A few days later, General Motors also laid out its plan, which calls for the company to become the “the most valued automotive company.” CEO Mary Barra said, “Our strategic plan is a pathway to earn customers for life and create significant shareholder value in the process. Every chance to connect with a customer is an opportunity to build a stronger relationship.”

To be sure, it is absolutely important for a company’s leadership to be focused on profitable growth. In this industry, this means putting out superb products in the face of ever-increas- ing competition.

What is interesting about the approaches of both Ford and GM  is that there is a focus on technology, both physical and digital.

But here’s one thing I wonder about as the automakers go boldly toward 2020: What are they doing vis-à-vis their suppliers? Are they focusing sufficiently on them?

Earlier this year, when the 2014 North American Automotive-Tier 1 Supplier Working Relations Index Study (WRI) was released by Planning Perspectives (ppi1.com), Ford and GM weren’t exactly at the top of the charts, although Ford measurably outperforms GM.

GM, according to the study, which is based on input from 362  Tier 1 suppliers, 29 of the Top 50 North American suppliers, is in last place when it comes to dealing with suppliers. It scores 244.

Ford is in fourth place. However, in 2013 it had been in third. It scores 267. In 2013 it was at 271. Nissan was at 256 in 2013. In 2014 Nissan is at 273.

Toyota, which is certainly as focused on growth and technology, on materials and digital developments, as Ford and GM, is at 318. It is in the top spot.

Meaning that if you’re a supplier, you’re probably getting better treatment from Toyota than from the other two. And if you’re getting this treatment, chances are you’re going to be more willing to work with Toyota on growth and technology, on materials and digital developments, than the other two. After all, while Toyota may not be the biggest OEM in the North American market, its global footprint—which is nowadays the focus—is as big as (or bigger than, depending on whose counting what, it seems) anyone else, so scale is in its favor, as well.

Planning Perspectives did another study this year, which looked at the potential profitability that would be realized by OEMs if they improved their supplier relations by 10%. Ac- cording to the analysis, GM could increase operating income $152 per vehicle. Ford could gain $130. All as a result of better supplier relations.

Every OEM is chasing a nickel here and a dime there, and here’s proverbial money on the table. Realize that this is not something that is unattainable, because if GM were to increase its WRI by 10%, that would raise its number to 268, which is just one better than Ford’s actual number and still behind Toyota, Honda (295) and Nissan (273). Ford’s boost would be to 294, which would put it in third place right now. (And one can only assume that Toyota, Honda and Nissan wouldn’t be sitting on their hands if they began to discern their competitors making some gains.)

Overall, the future looks brighter for the auto industry than it has for the past several years. But while CEOs at OEMs hold forth about their going boldly into the future, here’s hoping that they pay attention to the people who are helping get them there: the supplier community.