By Bill May, President of High Value Manufacturing Consulting (HVMC)
Take it from me, pretending that supplier issues don’t exist will not make them go away.
Recently I’ve heard from numerous automotive OEM leaders who admit supplier relationships are a major struggle, sometimes to the point of constraining their ability to successfully produce cars and trucks. Negative relationships with suppliers are impeding production! To make matters worse, very little is being done to resolve those supplier issues. Unfortunately, in most cases, OEM leaders honestly don’t know where to start to improve supplier relations that will ultimately achieve mutual success. As a kid we would say they are whistling past the graveyard…ignoring a scary situation and feelings of fear by pretending it is not there.
The HVMC team regularly references industry best practices when working with our manufacturing clients, whether they are in crisis or proactively seeking process improvements. For clients facing major supply chain challenges, this approach leads us to the question:
Which automotive OEMs have the best supplier relations?
The answer to that question can be found in this summer’s Industry Week report of the 2021 rankings from the annual Working Relations Index Study. In this study, data is collected from Tier 1 suppliers regarding supply chain engagement; these suppliers represent approximately 60% of OEMs’ annual purchasing. Reading the study through the lens of a manufacturing professional with more than 35 years experience in the automotive industry, I compare the findings to my own firsthand perspective gained from the plants of both OEMs and their suppliers. In this study, I’m curious about…
- What can we learn from the OEMs that rate well among suppliers?
- Do these findings reflect my own observations of the current supply chain challenges and relationship tensions in the plants?
- How is this information applicable to my own manufacturing clients seeking to improve supply chain relations and move beyond operating in a constant state of crisis management?
Here is how the scoring shook out for 2021’s Working Relations Index Study: Toyota was rated at the top by suppliers, which was no surprise given their leading scores over the majority of the last two decades. Honda continued to score well this year, and GM’s score made a significant jump (+20 points) among suppliers. Ford continued to rank in the middle of the group, with a score lower than last year and lower than nine years ago. Nissan made gains (+21 points) among suppliers, but maintains a relatively low ranking at the bottom of the chart along with FCA (now Stellantis), which fell (-28 points) to the lowest of scores.
From my experience, manufacturers on opposite ends of the spectrum as it relates to supplier relationships take very different approaches to working with their suppliers:
- An OEM that wants to help and support its suppliers believes supplier success will result in OEM success, a mutually beneficial working relationship. This OEM has the intention to help the supplier, holds consistent and high expectations, and provides necessary resources to achieve shared goals. Their relationship leads to strong working relations, better communication, and a more efficient supply chain. Even in these cases, manufacturers must manage workflow (or overflow) and keep up with industry changes to maintain this positive supply chain function.
- An OEM that blames its suppliers for incompetence and/or threatens them with the intent to impact production believes the supplier is not a meaningful partner for achieving manufacturing success. Unproductive criticism from an OEM accusing a supplier of being incapable or needing to be “fixed” is harmful to the supplier relationship. This is not an uncommon situation for poorly performing suppliers.
Automotive Consulting: Overcoming Supply Chain Roadblocks
As I reflect on this annual Working Relations Study Index and my own recent conversations with acquaintances in OEM leadership positions, I have a few thoughts…
- Even OEMs with strong scores from their suppliers still have underperforming suppliers. These may be cases of strained relationships that could function better. There may be minor process improvements in the supplier plants that would significantly increase efficiency and better meet production goals. HVMC works with those plants.
- OEMs with low scores from their suppliers have major opportunities for improvement in supply chain engagement initiatives. If the supplier relationships are strained to the point of dysfunction or are resulting in unmet production goals, it may be time to take a new approach. HVMC works with these urgent situations also.
- OEMs that plan to launch new product lines will be required to balance the supply chains for both the existing product(s) and the new product. As in the case of the Automotive Industry’s introduction of battery electric vehicles to replace the internal combustion engines, strategic attention must be placed on the engagement and coordination with suppliers of both product lines. This will not be an easy task. HVMC works with manufacturers launching new plants or products, and this is just one area of our team’s industry expertise.
- Tier 1, 2 and 3 suppliers struggling to meet their customers’ expectations should not wait to be approached by their dissatisfied customers. Be proactive and seek out solutions now! Do not wait for the automotive demand to surge beyond your capability. That surge will occur, the current chip shortage will end, and the OEMs will demand suppliers keep up with, or exceed, their production ramps to restore inventory and to regain customer sales.
High Value Manufacturing Consulting works with OEMs & Tier 1/2/3 suppliers in automotive, aerospace, and defense industries to increase productivity, cut costs, and generate cash to the bottom line. The highly experienced team at HVMC understands what it takes to be successful in today’s manufacturing environment. We rely on vast professional experience, best practices, and innovation to produce quick response solutions for clients.
So, stop whistling to cover your fear of scary things. Those scary things can be solved! If you would like to improve supply chain performance, contact us. We’ll have you whistling a happy tune to celebrate stronger supplier relationships and improved operational performance.