New Annual Index From Planning Perspectives Will Track Automotive OEM-Supplier Working Relations

BIRMINGHAM, Mich., May 12, 2003 -- Planning Perspectives, Inc. today unveiled a new annual index that will help the auto industry gauge how well the major U.S. and Japanese automakers are working with their suppliers.

Called the OEM-Supplier Working Relations Index (WRI), it ranks on a scale from very poor to very good how suppliers rate their working relationship with their automaker customers based on five areas:

  -- the quality of their overall Relationship, ranging from partnership to
     adversarial
  -- the extent to which OEM Communication is open and honest
  -- the amount of OEM Help provided to suppliers in meeting OEM price and
     quality demands
  -- the degree of OEM Hindrance that impedes the suppliers' ability to do
     the best possible job in providing products to the OEMs
  -- the supplier Profit Opportunity at each OEM

These five areas, in turn, are determined by evaluating 17 variables (see Table 1).

What is particularly significant about the WRI is that neither OEM price reduction demands nor supplier price concessions are factors in it and therefore "the Index will give OEMs an accurate measure to gauge their relationships with suppliers based solely on how they interact," according to John W. Henke, Jr., Ph.D., whose firm, Planning Perspectives, Inc. conducts the annual industry study on which the WRI is based.

"Over the years, the automakers have launched numerous programs to improve their relations with suppliers. Now, OEMs -- and the industry -- will have a way to determine whether their programs are working, the quality of their supplier working relations and whether OEM purchasing and engineering staffs are in sync with top management's public message."

Henke says this knowledge is critical to the success of the OEM since Planning Perspectives' exhaustive auto industry studies have shown that good supplier working relations directly affect a supplier's willingness to share technology and willingness to work toward helping OEMs improve quality, cost, and competitiveness.

The WRI was two years in the making. To arrive at the Index rankings, Planning Perspectives analyzed a total of 2480 OEM-supplier business situations reported by suppliers in its 2002 and 2003 North American Automotive Tier 1 Supplier Studies. The annual studies each involved over 260 suppliers sharing with Planning Perspectives in an anonymous survey their experiences of working with Ford, General Motors, and the Chrysler Group, plus Toyota, Nissan and Honda. These suppliers, of which over 60 are Top 100 Tier 1 suppliers, make up more than half of these automakers' annual buy.

The WRI is the first measure of how OEM middle and lower management in purchasing and engineering are working with suppliers. As such, Henke says it will provide the third leg of the three-legged stool on which significant OEM production-related business measures are based.

"The annual J.D. Power studies measure overall vehicle quality, the Harbour Report documents manufacturing quality, and now the Planning Perspectives WRI measures the quality of OEM-supplier working relations. The addition of the WRI can only benefit the industry as a whole and result in even higher quality vehicles to consumers," he said.

About PPI

Since 1990, PPI has specialized in developing and implementing in-depth surveys of suppliers for the automotive OEMs and Tier 1 suppliers. In 2001, PPI initiated its syndicated Annual North American Automotive Tier 1 Supplier Study. These studies have become benchmarks for the industry and provide critical sales and financial planning information for suppliers and their sales, marketing, and financial staffs, as well as a means by which OEMs and their purchasing staffs can get a reality check on their working relationships with suppliers.

  Table 1.  OEM - Supplier Working Relations Index Areas and Variables.

     AREAS                        WORKING RELATIONS VARIABLES

  Relationship             1) Supplier trust of OEM
                           2) Supplier - OEM working relationship

  Communication            3) OEM open and honest communication with
                              supplier
                           4) OEM communicates timely information to
                              supplier
                           5) OEM communicates adequate amounts of
                              information to supplier

  OEM Help                 6) Help OEM gives to supplier to reduce costs
                           7) Help OEM gives to supplier to improve quality

  OEM Hindrance            8) OEM late/excessive engineering changes
                              (reverse measure)
                           9) Conflicting objectives across OEM functional
                              areas (reverse measure)
                          10) Supplier given flexibility to meet piece
                              price/tooling cost objectives
                          11) Supplier involvement in OEM product
                              development process

  Profit Opportunity      12) OEM shares savings from supplier's piece price
                              cost reduction proposals
                          13) OEM shares savings from supplier's value chain
                              cost reduction proposals
                          14) Supplier rewarded with new business because of
                              cost-saving ideas
                          15) OEM covers supplier's sunk costs on cancelled
                              or delayed programs
                          16) OEM concern for supplier's profit margin when
                              asking for price reductions
                          17) Supplier's opportunity to make acceptable
                              profit margin over long term