An industry consultant equates the discrepancy in quality relations between U.S. and Japanese auto makers and their suppliers to different approaches in raising children.

“There's two ways to go about it – either you beat the hell out of them or you do it in a loving, caring way and you continually reinforce what you want,” says John Henke, president-Planning Perspectives Inc. of Birmingham, MI. “The kids that end up being beaten are going to do what you want, but they're going to be incredibly dysfunctional, while the other ones will be just normally dysfunctional.”

Henke has been studying OEM-supplier relations since 1990. PPI recently released its 2005 survey, in which 259 supplier companies participated.

PPI uses the survey answers to create a Working Relations Index based on 17 business variables, such as trust, communication and sharing of development/engineering costs. The index also includes whether suppliers believe their customers are concerned for their overall well being. (See related story: GM, Ford Hurting From Poor Supplier Relations)

As in recent years, the survey gives high marks to Japanese auto makers, with Toyota Motor Mfg. North America Inc. scoring the highest with 415 points out of a possible 500. Honda of America Mfg. Inc. and Nissan North America Inc. came in second and third with scores of 375 and 298, respectively.

The domestic Big Three fell further down the scale this year. General Motors Corp. placed last with a score of 114.

These results represent the highest and lowest overall scores and the greatest range that PPI has ever seen in any industry analysis, Henke says.

“They (GM) don't fully appreciate the value of good relationships,” says Henke. “They can save more money and reduce their costs substantially by having good working relations with their suppliers than they can by hammering them every year (to lower costs).”

GM admits it has room to improve. But it says it does not want good relations with bad suppliers, and its relationships always will be based on performance.

The world's No.1 auto maker also disputes the survey's findings that it does little to improve its supplier relations, and that it is losing out on new technologies because suppliers prefer to do business with Japanese auto makers.

GM's Bo Andersson

Bo Andersson, GM vice president-worldwide purchasing, tells Ward's that suppliers in virtually every region of the world love to work with GM, except in the U.S.

“They are not prepared to play in the Olympic games,” Andersson says of GM's U.S. suppliers. “These are global, competitive games. When it comes to automotive suppliers, they think we owe them something, that we owe (it to) them to buy in the U.S. And I say we don't.”

“What we owe suppliers is to deal with integrity. We owe that we give everyone an equal opportunity. We owe them clear expectations. We owe them clear feedback, and we owe them that the best-performing suppliers are able to grow their business.”

Ford Motor Co. and the Chrysler Group fared slightly better than GM in the survey, scoring 157 and 196, respectively.

Ford's Tony Brown

“It takes a long time to change the point of view of how people or companies 'perceive' a relationship,” Tony Brown, Ford's vice president-global purchasing, tells Ward's. “It's a company issue because we view suppliers not as an exclusive domain of purchasing but as a part of the company process.”

Chrysler was the only U.S. auto maker to improve its supplier relations from 2004, according to the study, posting a 7% improvement over year-ago.

Peter Rosenfeld, Chrysler's executive vice president-procurement and supply, says he is pleased the survey finds his company's relations improving, but that his job is not to win a popularity contest.

Chrysler's Peter Rosenfeld

“I do not manage the relationship with the supply base based on surveys,” he says. “I continue to believe that we will manage relationships one at a time, so using a survey to manage it really doesn't work for me.”

Like his counterpart at GM, Rosenfeld says Chrysler will continue to deal objectively with suppliers and will reward good performance – and take business away when companies fail to live up to expectations.

“Suppliers learn that their destiny is in their own hands,” he says. “There is more than one business model to dealing with suppliers. I think there's alternative competing business models as to what works.”

Although the Big Three purchasing chiefs say quality is paramount, the Henke study finds U.S. auto makers still heavily focused on cost-reduction. Conversely, Japanese auto makers consider price a factor, but emphasize quality, technology and overall business performance even more.

“You've just got to keep the pressure on to keep your costs down,” Henke says. “But it isn't the pressure itself that's important, it's how you apply the pressure.”

What's more, suppliers say in the survey they give into Big Three pricing pressure primarily because of OEM threats and fear of losing business.

In contrast, suppliers say they felt far less threatened by their Japanese OEM customers and reduced their prices more through productivity improvements than by cutting margins. This more nuturing relationship is causing them to pursue even more business with Japanese OEMs.

“It's a philosophy of Toyota to buy locally,” Henke says. “Their suppliers trust them to the point where they're willing to share cost data because they know Toyota's purpose for wanting it is to figure out how to take cost out of the system, not out of their profit margins.”

Toyota and Honda purchasing officials in the U.S. say they appreciate how their companies perform in the PPI study, but they will not rest on their laurels.

“We shouldn't spoil ourselves even though there is lots of good news about Toyota,” says Osamu “Simon” Nagata, vice president-purchasing for TMMNA. “There are many areas for us to be able to improve. By listening to our suppliers and accepting responsibility, we hope to develop better supplier relations.”

– with Tom Murphy