Flip flop: automakers, suppliers exchange views on demand

What a difference a year makes. In Ward's Auto World's 1994 supplier survey, suppliers conceded difficulties in trying to keep up with automaker demand, but automaker respondents seemingly weren't aware of the strain they were putting on their vendors. In this year's survey suppliers indicate they've got the situation under control while the Big Three voice concern over suppliers' ability to deliver the goods.

These are among the more puzzling results of Ward's 17th annual inquiry into supplier issues. Other findings include confirmation that automakers are giving increasing engineering responsibility and systems contracts to suppliers. Perhaps surprisingly, suppliers are adding capacity to handle growing business -- despite the recent production downturn. One encouraging finding: in most cases supplier-automaker relationships are improving, even though the battle over prices continues unabated.

In 1994, 41.8% of suppliers polled admitted having problems meeting automaker demands for components -- and component quality. This year, only 26.7% say that's the case. Conversely, last year 71% of the automaker respondents reported no glitches in getting top-notch products from suppliers, and 80% doubted there'd be future problems. Just 12 months later, a hefty 88% in the automaker ranks say suppliers have quality and delivery issues.

Are suppliers having trouble meeting quality and delivery standards?

1995

1994

"Last year OEMs (automakers) probably weren't dealing with reality, and this year's answers probably reflect last year's problems," observes Marc Santucci, president of Elm International Inc., an East Lansing, MI-based research firm. "There are still bottlenecks at supplier companies."

Survey data suggests automakers are most concerned about interior and chassis components, which these days are being produced by a smaller number of suppliers and spread over a wider range of several vehicles. A glitch in this pipeline can be disastrous.

Despite the slowing production rate, some 83% of suppliers surveyed say their companies plan to expand capacity. Only 13% say they've cancelled expansion plans due to the downturn. Meanwhile, 57% of the automaker group say they expect suppliers to cancel or postpone such plans in line with easing sales.

One trend that's accelerating is supplier involvement in the product engineering and development process. Nearly 82% on the supplier side say they've taken on more engineering responsibility during the past year. In close numerical agreement, 78% of OEM respondents say their companies have given more engineering responsibility to suppliers in the same period.

Dissection of the data shows chassis and exterior components and systems as areas where suppliers are being entrusted with the most, and increasing, engineering tasks.

But with added responsibility comes added warranty/recall liability, say 60% of suppliers and 84% of OEMs. Half of the suppliers surveyed say their costs will rise 5% to 10% as the price of greater responsibility, while another 20% say the cost penalty will be closer to the 10% to 15% range.

Who'll cover those costs? Almost half among the supplier group expect they'll be offset by further efficiency gains. More than 36% among the OEMs say leaner manufacturing will do the trick, with 34% saying higher supplier volume and longer-term contracts will reap cost benefits.

The WAW survey also verifies that supplier systems contracts are on the rise. Two-thirds of the suppliers queried allow that their outfits are involved in more systems business now that a year earlier; 72% of those say the trend helps their business. Nearly three-quarters among the OEM respondents confirm that systems contracts -- mostly in the chassis and interior areas -- have increased in the last year.

Although systems contracts are growing, individual components still make up the bulk of business for half of the responding suppliers. Almost a quarter of the suppliers say modular systems comprise a majority of their business; 15% report "significant" system contracts.

WAW's 1994 survey indicated OEM-supplier relationships, severely damaged by years of stringent price demands and distrust, had begun to improve. This year's responses are even more encouraging, although price remains a contentious issue.

Eighty-five percent of suppliers and about 75% of OEMs say the burden of improving the relationship should be shared equally. Almost 90% of OEMs say they are working hard to shore up supplier relations.

"Maybe it's because people are operating close to capacity and are making a profit when they normally wouldn't be for the price they're getting," says Mr. Santucci when asked to explain the seemingly positive results. "The bottom line is that people are happier when they're making money."

While 71% of OEMs report "good" working relationships with suppliers, only 48% of General Motors Corp. respondents concur, indicating all still is not well with the General. Overall, 21% of OEMs say their relationships with suppliers are "excellent."

Responding to questions about individual carmakers, 52% of suppliers say their relationship with GM is "good," approximately the same as a year ago. Only 8.3% say it's worse, and among those who classify GM as their major customer, just 14% say things have gotten worse.

Who bears the burden of improving OEM/supplier relationships?

Supplier

Slightly more than half of all participating suppliers say GM is not doing everything it can to improve relationships, and 55% of the predominantly-GM suppliers agree.

But a like percentage of those suppliers with a big stake in GM say their relationships with the automotive giant improved during the past year. That compares to the 42% of the full supplier group who agree things got better at GM.

More than half of all suppliers say they expect their relationships with Ford Motor Co. to stay the same under the new Ford 2000 global purchasing program. Nearly 30% expect relationships to improve, and about half of those from companies doing most of their business with Ford say things will improve under Ford 2000.

Chrysler Corp. remains the best OEM with which to work, say 42% of the overall supplier group. That jumps to 82% among suppliers checking Chrysler as their biggest customer. Yet only 45% of the latter group say their relationship with the No.3 automaker improved over the last year -- compared with 67% among all suppliers.

Have suppliers assumed more engineering responsibility?

YES

One important way suppliers can tackle quality questions is to become QS 9000-certified by deadlines imposed by the Big Three automakers. Only 27% of suppliers queried say their companies already are certified. Of those that aren't, 18.3% expect to be this year, 25% in 1996 and another 18.3% say their companies will reach QS 9000 certification by 2000.

Half of the suppliers asked say QS 9000 will make their business easier, and participants are fairly evenly split on the value of the expensive third-party certification: 45% say QS 9000 certification is worth the cost, 43.3% say it's not.

Nearly 56% of OEMs polled say QS 9000 will improve quality, and 67.4% favor the requirement. Some 68% say they are aware of the costs associated with certification, and 61% believe it's worth the price.

Have suppliers cancelled expansion plans due to slowdowns?

YES

Is ISO 9000 certification worth the cost of a third-party certifier?

YES

Among the survey's other findings:

* Suppliers are positioning themselves for consolidation, with 42% indicating their companies have acquired -- or have been acquired by -- another supplier in the past year. A third of those in this category say it has been a positive experience. Five percent say the move pushed their companies up to the first tier. A sizable 38% say their companies entered into joint ventures over the past year. Among those whose companies haven't been involved in an acquisition since a year ago, 3% expect that to happen within a year, 10% say it will occur by 2000, and 25% say it will probably never happen.

* The pricing wars rage on. Sixty-seven percent of suppliers say they continue to deliver price cuts to their OEM customers, while 46.7% say they have not raised component prices. Almost all of the automakers polled say their companies continue to pressure suppliers for price cuts.

In that respect, the more things change the more they apparently remain the same.