Winds of Change Test OEM, Supplier Relations

TRAVERSE CITY, MI – Tightening regulatory regimes and new forms of mobility will put relations between automakers and suppliers to the test and place greater emphasis on transparency and problem-solving, leading industry executives say.

“We discuss (CAFE) endlessly, every day, within the company,” says Mahesh Kodumudi, executive vice president-corporate purchasing, Volkswagen Group of America.

“We will have to partner more intensely with our suppliers to meet them,” he tells the CAR Management Briefing Seminars here.

Kodumudi says change will be felt most acutely at VW, as the German automaker plans to keep its foot on the throttle in North America as it rebuilds from the diesel-emissions-cheating scandal.

In addition to launching a new CUV at its assembly plant in Tennessee, VW soon will start building an Audi CUV in Mexico as part of a heavily electrified, 30-product salvo by 2025.

He says the activity will compel VW to build a significant R&D presence in the region with the help of suppliers it wants on board early and alongside it as those developing technologies reach production.

“Cost will be critical,” he warns, because research shows Americans are unwilling to pay a premium for those technologies.

Kodumudi also says, despite rumors circulating in the industry, “huge costs” incurred by Dieselgate will not be passed onto VW suppliers by squeezing them on price.

“On the contrary,” he says. “There is a significant move to collaborate more with suppliers.”

Tom Lake, vice president-purchasing at Honda North America, says a crisis is an opportunity for an automaker to prove its mettle to suppliers.

“There are forks in the road, and how a company handles them will determine supplier relations,” says Lake, a 29-year veteran of Honda in the U.S.

Supplier report cards, a controversial performance barometer, also can help preserve relations when the going gets tough, says Nigel Thompson, president and CEO of Yazaki North America.

“We like scorecards,” Thompson says. “Ultimately, the scorecard is a reflection of what is important to the customer, and what is important to the customer has to be what is most important to us. We are looking at them all the time.”

However, Yazaki also relies heavily on internal metrics because they can reveal mismatches that require deeper investigation.

“That is absolutely a best practice,” remarks Lake.

Honda uses scorecards as one element of a data set to evaluate suppliers and back it up with experiential data. But Lake says nothing replaces transparency. If a problem exists, such as shipment of a defective part, Honda wants the supplier to come forward immediately.

“We will work through the issue,” he says.

Volkswagen gave up scorecards years ago, and Kodumudi says there are no immediate plans to reinstate them. He says regional managers were drafting their own scorecards, which led to inconsistencies, so Volkswagen centralizes performance metrics on a global basis.

“It’s not that we don’t give suppliers feedback; we don’t officially give scorecards in regions,” he says. “But we do continuously engage with suppliers so they know very clearly where they stand in terms of quality metrics, delivery metrics (and) cost metrics.”

Kodumudi says openness and honesty will preserve relations if a problem arises.

“We’re not perfect,” he adds. “We have our problems. We understand.”

There is good reason for patience by OEMs, too. Kodumudi presents data showing suppliers brought 30% of added value to the industry in 2012. By 2025 it will reach 69%.

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