PART 1. The triangle of synergy: OEM - Supplier - Toolmaker relations
Updated: Jun 19, 2020
Poor Supplier Relations
OEM-supplier relations have been consistently low for the past few years, and it doesn’t look as if it’s going to change.
Take the automotives industry as an example.
In 2019, a study by Plante Moran (source) showed that suppliers are rating six major North American automakers poorly in terms of trust, communication, help from OEMs, hindrance from OEMs, and profit opportunity.
For the past 7 years, suppliers have rated their working relations with Ford, GM, FCA US, Honda, Toyota, and Nissan as either ‘Adequate’ or ‘Poor’. Any positive progress has been inconsequential; the Working Relations Index (WRI) for all six automakers has more or less been consistent on a year-by-year basis.
Why: Conflicting Perspectives
Why is this? How does the study explain this? There is a fundamental conflict of perspectives between automakers and suppliers. As such, their working relations cannot but be poor. Let’s look at the perspectives of automotive OEMs and suppliers, as indicated in the study:
OEMs’ perspective To gain a competitive edge, OEMs need to invest in innovations and new technologies, reduce costs of production, lower pricing, reduce time to market, and improve overall efficiency. OEMs would like their suppliers to accept engineering changes, as well as cost reductions for parts produced. SUMMARY: OEMs want suppliers to adopt engineering and purchasing-related changes in order to gain more value from them.
Suppliers’ perspective However, drastic engineering changes can be problematic for suppliers. It can be difficult to adjust to new innovations; adjusting to new things could also slow down on-time deliveries, adversely impact quality, and affect the suppliers’ bottom line. Conflicting OEM goals in engineering and purchasing have also shown to hinder suppliers. SUMMARY: Suppliers feel uneasy about adjusting to OEM requests. The more OEMs press their suppliers, the more suppliers feel uncomfortable working with them.
How Does This Affect Me?
You can’t understate the importance of healthy OEM-supplier cooperation.
According to Dave Andrea of Plante Moran,
“Suppliers contribute 60-70 percent of the value of the vehicle, so it is clearly in the OEMs' best interest to set the goal of becoming the most preferred automaker to do business with.” - Dave Andrea, Principal in Plante Moran's Strategy and Automotive/Mobility Consulting Practice
If you want to boost your performance, you’ll want to work with suppliers who want to work with you. Doesn’t matter the industry. OEMs and suppliers need to trust each other to share technology and intellectual property. Suppliers could reduce the price of produced parts for OEMs, but only if they trust them. Smoother OEM-supplier communication could also resolve problems more quickly.
“...working relations are a strong indicator of profitability for the OEM and supplier alike … strong working relations reduce the cost of doing business, improve efficiency and productivity, and reduce time to market.” - 19th North American Automotive OEM-Supplier Working Relations Index
What Needs to Be Done?
In the larger picture, manufacturing is possible through the work of three key actors. The toolmaker that builds parts-producing toolings. The supplier that operates said toolings to produce necessary parts. And the OEM that brings these parts together, ships the assembled final product, and sells them under their value-added brand.
It may seem daunting, but OEMs need to start re-evaluating their relationships not just with suppliers, but with toolmakers as well. Careful evaluation is needed to make fair, reasonable judgments. Only then can OEMs, suppliers, and toolmakers align their goals, build trust, and boost productivity.
The catch is that the only way to make these ‘careful evaluations’ is through data. Real, accurate, inarguable data.
Subscribe to our content library to read next week’s article, and find out what we mean when we say OEM-supplier-toolmaker relations can become a triangle of synergy rather than just bilateral business partnerships.