17 th Annual North American Automotive OEM - Tier 1 Supplier Working Relations Index Study

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1 17 th Annual North American Automotive OEM - Tier 1 Supplier Working Relations Index Study Society of Automotive Analysts Purchasing Summit John W. Henke, Jr., Ph.D. President/CEO, Planning Perspectives, Inc. Professor Emeritus of Marketing, Oakland University Research Fellow, Center for Supply Chain Management, Rutgers University Basis of Participants Answers OEM Commodity Area Buying Situation Purchasing Areas Commodity Areas Body-in-White 1. Body-in-white, stampings, frames Chassis Electronics & Electrical Exterior Interior Powertrain OEMs: FCA Nissan GM Ford Honda Toyota 2. Fuel handling, exhaust systems, cooling systems and components 3. Brake systems, steering, suspensions 4. Tires, wheels, and mechanisms 5. Electronics, ICs, PC boards, ECUs, sensors, wiring 6. Audio systems, safety systems, security systems 7. Body panels, exterior ornamentation, fascias, sealing 8. Exterior lighting, mirrors, glass, wiper systems, latches 9. Seat systems, restraint systems, airbags 10. IPs, consoles, interior trim, headliners, carpeting, matting 11. Heating, ventilation, A/C 12. Engines and engine components 13. Transmissions and transmission components 14. Axles, traction systems and components 2017 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 1of 15

2 2017 Annual Study Participants Time Frame: Early-March to Mid-April 652 sales personnel (647) Tier 1 suppliers (492) 40 N.A. Top 50 suppliers (38) 68 N.A. Top 100 suppliers (59) 2016 annual N.A. sales equals 64% of six OEMs annual buy (59%) 1974 buying situations (OEM Commodity Area combinations) (1998) Anonymous and confidential Annual Study participants in parentheses 2017 Information may not be used for any commercial or academic purpose without written permission from PPI. 3 Working Relations Activities Components Variables Buyer-Supplier Relationship Supplier trust of buyer Supplier perception of overall working relations with Buyer Buyer Communication Buyer open and honest communication Buyer communicates timely information Buyer communicates adequate amounts of information Working Relations Index Buyer Help Buyer Hindrance Buyer help to suppliers to reduce costs Buyer help to suppliers to improve quality Buyer late/excessive engineering changes (reverse measure) Conflicting objectives across Buyer functional areas (reverse measure) Supplier given flexibility to meet cost objectives Supplier involvement in Buyer product development process Supplier Profit Opportunity 1 Buyer refers to the supplier s customers. Buyer shares savings from supplier cost reduction proposals Buyer rewards high performing suppliers with new/cont d bus Buyer covers sunk costs on cancelled or delayed programs Buyer concern for supplier profits when asking price reductions Supplier opportunity to make acceptable return over longterm 2017 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 2of 15

3 Working Relations Index Very Poor Buyer Supplier Working Relations Very Good Adversarial Buyer Supplier Relationship Collaborative Limited & Questionable Buyer Communication Open & Honest Less Buyer Help More A lot Buyer Hindrance Little Smaller Supplier Profit Opportunity Greater Supplier s Perception Supplier s Reaction Adversarial Worthwhile Business Our Business to Lose Short-term view Operational view Long-term view Minimal expenditures; Maximum returns Do our best Strategic actions in anticipation of Buyers needs 2017 Information may not be used for any commercial or academic purpose without written permission from PPI. 5 OEM - Supplier Working Relations Index OEM Supplier Working Relations Good - Very Good Very Poor - Poor Adequate GM Ford FCA US Nissan Honda Toyota Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 3of 15

4 OEM - Supplier Working Relations Index GM Ford FCA US Nissan Honda Toyota OEM Supplier Working Relations Good - Very Good Very Poor - Poor Adequate Information may not be used for any commercial or academic purpose without written permission from PPI. Buying Situations Percentage per WRI Category % Very Poor - Poor Adequate Good - Very Good 60% Percentage of Occurrence 50% 40% 10% 49% 54% 59% 54% 56% 58% 29% 23% 16% 22% 19% 26% 29% 15% 29% 13% Nissan FCA 2016 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 4of 15

Buying Situations Percentage per WRI Category 2015-2017 70% Very Poor - Poor Adequate Good - Very Good 60% Percentage of Occurrence 50% 40% 10% 43% 46% 42% 58% 51% 38% 33% 32% 24% 24% 26% 23%

9 70% Buying Situations Percentage per WRI Category 2015-2017 Very Poor - Poor Adequate Good - Very Good 60% Percentage of Occurrence 50% 40% 23% 29% 48% 26% 32% 41% 28% 42% 27% 26% 48% 27% 43%

5 Buying Situations Percentage per WRI Category % Very Poor - Poor Adequate Good - Very Good 60% Percentage of Occurrence 50% 40% 10% 43% 46% 42% 58% 51% 38% 33% 32% 24% 24% 26% 23% 19% 28% 21% 32% Ford General Motors 2016 Information may not be used for any commercial or academic purpose without written permission from PPI. 9 70% Buying Situations Percentage per WRI Category Very Poor - Poor Adequate Good - Very Good 60% Percentage of Occurrence 50% 40% 23% 29% 48% 26% 32% 41% 28% 42% 27% 26% 48% 27% 43% 27% 29% 43% 10% Honda Toyota 2016 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 5of 15

6 Purchasing Areas Change in 2017 WRI Relative to 2016 WRI Purchasing Area 1 OEM Body-in- White Chassis Electrical & Electronics Exterior Interior Powertrain Toyota Honda Ford General Motors FCA Nissan Red number indicates amount of drop in Purchasing Area WRI relative to 2016 Green number indicates amount of increase in Purchasing Area WRI relative to Information may not be used for any commercial or academic purpose without written permission from PPI. 11 Purchasing Area Working Relations Indices 2017 Purchasing Area 1 OEM Body-in- White Chassis Electrical & Electronics Exterior Interior Powertrain Toyota Honda General Motors Ford FCA Nissan Green number indicates highest Purchasing Area WRI Red number indicates lowest Purchasing Area WRI 2017 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 6of 15

Supplier Working Relations and Buyer Profits A Systemic Model 1 Foundational Activities Relational Activities Supplier Behaviors Supplier Impact on Buyer Profits 1 Buyer refers to the purchasing

2017 Information may not be used for any commercial or academic purpose without written permission from PPI.

Knowledge of supplier capabilities Buyer Characteristics Index Communication Working Together OEM s strategy for supplied products OEM s long-term overall purchasing strategy Open and transparent in

7 Supplier Working Relations and Buyer Profits A Systemic Model 1 Foundational Activities Relational Activities Supplier Behaviors Supplier Impact on Buyer Profits 1 Buyer refers to the purchasing personnel who interfaces with the Supplier s sales personnel who has commercial responsibility for the goods/services sold to the Buyer Information may not be used for any commercial or academic purpose without written permission from PPI. 13 Buyer Characteristics Components Variables Knowledge Commercial knowledge Product/service technical knowledge Knowledge of application of product supplied Knowledge of supplier products/services Knowledge of supplier capabilities Buyer Characteristics Index Communication Working Together OEM s strategy for supplied products OEM s long-term overall purchasing strategy Open and transparent in sharing sufficient internal OEM information needed to meet OEM s needs Shares information needed to meet OEM expectations in a timely manner Accessibility Integrity Trusts supplier firm Trusts supplier salesperson Working to build more trusting relations with supplier Timely resolution of issues Effective resolution of issues Concerned supplier s business is successful Considers supplier s commercial and financial interests Strives to reach equitable resolutions when differences arise 2017 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 7of 15

8 Buyer Index Very Poor Buyer Characteristics and Practices Very Good Little Knowledge Considerable Adversarial Working Characteristics Collaborative Piecemeal Communication Comprehensive Supplier s Perception Buyer no/little competence Buyer reasonably fair & equitable, somewhat knowledgeable Buyer fair, equitable, & knowledgeable Supplier s Reaction Little trust of Purchasing Agent Trust Purchasing Agent High trust of Purchasing Agent 15 Basic Business Practices Components Variables Building Trusting Relations Head of Purchasing Buyer Basic Business Practices Index Working Together Financial Practices Terms and Conditions fair and equitable Terms and Conditions balanced Proprietary and confidential information protected Lives up to spirit of commitments Honors contractual commitments Treated as a valued supplier Fairness in dealings Invoice payments on time Invoice payments meet agreed-to-payment terms Payment issues resolved in timely manner Payment issues resolved in fair and equitable manner Fairness in chargeback allocations Mandated and raw materials cost increases recovery 2017 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 8of 15

Basic Business Practices Index Very Poor Basic Business Practices Very Good Non-Existent Building Trusting Relations Considerable Adversarial Working Together Collaborative Inequitable Financial

somewhat preferred customer Trust customer, preferred customer High trust of customer, very preferred customer 17 Detroit 3 and Japanese 3 Supplier Working Relations 2017 GOOD VERY GOOD 500 400 Buyer

9 Basic Business Practices Index Very Poor Basic Business Practices Very Good Non-Existent Building Trusting Relations Considerable Adversarial Working Together Collaborative Inequitable Financial Practices Equitable Supplier s Perception Customer neither fair, nor equitable Customer reasonably fair and equitable Customer fair and equitable Supplier s Reaction No/Little trust of customer, somewhat preferred customer Trust customer, preferred customer High trust of customer, very preferred customer 17 Detroit 3 and Japanese 3 Supplier Working Relations 2017 GOOD VERY GOOD Buyer Characteristics Index Business Practices Index Working Relations Index Index Value VERY POOR POOR ADEQUATE Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 9of 15

Detroit 3 and Japanese 3 Supplier Working Relations 2015-2017 2017 Information may not be used for any commercial or academic purpose without written permission from PPI.

10 Detroit 3 and Japanese 3 Supplier Working Relations Information may not be used for any commercial or academic purpose without written permission from PPI. 19 Buyer Characteristics Indices OEMs Overall GOOD VERY GOOD Index Value VERY POOR POOR ADEQUATE * Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 10 of 15

GOOD VERY GOOD 500 400 Basic Business Practices Indices OEMs Overall 2015 2016 2017 Index Value VERY POOR POOR ADEQUATE 300 200 302 295 285* 291 293 293 313 314 316 299 309 327* 340 342 347 351 353

11 GOOD VERY GOOD Basic Business Practices Indices OEMs Overall Index Value VERY POOR POOR ADEQUATE * * Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 21 Supplier Benefit Indices OEMs Overall GOOD VERY GOOD Index Value VERY POOR POOR ADEQUATE * Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 11 of 15

Working to Build More Trusting Relations OEMs Overall - 2017 To a Very 5.00 Great Vice President of Purchasing Buyer of Working To a Great 4.00 To a Some 3.00 To a Little 2.00 2.17 2.63 2.56 2.74 2.

23 OEM Pressure on Suppliers Nissan vs. General Motors of Pressure To a Very 5.00 Great To a Great 4.00 To a Some 3.00 To a Little 2.00 4.

12 Working to Build More Trusting Relations OEMs Overall To a Very 5.00 Great Vice President of Purchasing Buyer of Working To a Great 4.00 To a Some 3.00 To a Little To a Very Little/ 1.00 No 2017 Information may not be used for any commercial or academic purpose without written permission from PPI. 23 OEM Pressure on Suppliers Nissan vs. General Motors of Pressure To a Very 5.00 Great To a Great 4.00 To a Some 3.00 To a Little To reduce prices To reduce total cost of acquisition To improve quality To introduce innovative products/processes To improve on-time deliveries To a Very Little/ 1.00 No Nissan General Motors Red number indicates statistically significant higher value between OEMs Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 12 of 15

Treatment of Suppliers Nissan vs. General Motors To a Very 5.00 Great Honor contractual commitments Live up to spirit of commitments Treat suppliers as valued suppliers of Treatment To a Great 4.

00 No Nissan General Motors Red number indicates statistically significant higher value between OEMs.

13 Treatment of Suppliers Nissan vs. General Motors To a Very 5.00 Great Honor contractual commitments Live up to spirit of commitments Treat suppliers as valued suppliers of Treatment To a Great 4.00 To a Some 3.00 To a Little Fair in dealings with suppliers To a Very Little/ 1.00 No Nissan General Motors Red number indicates statistically significant higher value between OEMs Information may not be used for any commercial or academic purpose without written permission from PPI. 25 Most Important Reason for Price Concession OEM Threat of Reduced Business/Fear of OEM Retaliation 40% % 34% Percent of Occurrence 10% 17% 29% 22% 23% 6% 5% 22% 17% 19% 18% 27% 23% 18% 21% 14% 12% 15% 7% 11% 0% 2017 Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 13 of 15

Supplier Anticipation of Working Relations One Year From Now Working Relations Anticipated in One Year Better 6.00 Somewhat Better 5.00 About the Same 4.00 Somewhat Worse 3.00 Worse 2.00 Much Worse 1.

14 Supplier Anticipation of Working Relations One Year From Now Working Relations Anticipated in One Year Better 6.00 Somewhat Better 5.00 About the Same 4.00 Somewhat Worse 3.00 Worse 2.00 Much Worse * * Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI. 27 Degree to Which OEM is a Preferred Customer Very Preferred Supplier Customer Preference of OEM Preferred 4.00 Somewhat Preferred * * * Ambivalent 2.00 Red number indicates statistically significant difference with previous year. Asterisk (*) indicates statistically significant difference with Information may not be used for any commercial or academic purpose without written permission from PPI Planning Perspectives, Inc. Page 14 of 15

OEM - Supplier Working Relations Index GM Ford FCA US Nissan Honda Toyota OEM Supplier Working Relations Good - Very Good Very Poor - Poor Adequate 400 300 200 367 359 349 339 268 253 232 191 183 163

15 OEM - Supplier Working Relations Index GM Ford FCA US Nissan Honda Toyota OEM Supplier Working Relations Good - Very Good Very Poor - Poor Adequate Information may not be used for any commercial or academic purpose without written permission from PPI. 17 th Annual North American Automotive OEM - Tier 1 Supplier Working Relations Index Study Society of Automotive Analysts Purchasing Summit 1035 South Adams Road Birmingham, MI USA ppi1.com Planning Perspectives, Inc. Page 15 of 15

GM Jumps to Third Place, Nissan falls to last, in Annual Study of Automakers Relations with Suppliers

FOR: Planning Perspectives, Inc. Birmingham, MI CONTACT: Mike Hedge Hedge & Company, Inc. 248-789-8976 (cell) mhedge@hedgeco.com GM Jumps to Third Place, Nissan falls to last, in Annual Study of Automakers