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Relationship Math

There is a saying about eating in a restaurant: You don’t want to anger your waiter. You get better service—and possibly food—if you don’t. The WRI is sort of like that.

When you talk to OEM personnel about “quality,” ratings in such things as the J.D. Power IQS study and the recommendation (or lack thereof) in Consumer Reports generally emerge early in the conversation. Surveys and assessments are important in knowing where one is.

One of the most important surveys, however, is not something that gets touted in advertisements or that is found on newsstands. And arguably, what this survey’s results reveal is at the core of how well an OEM is going to perform on J.D. Power or CR rankings. It’s the North American Automotive OEM-Tier 1 Supplier Working Relations Index (WRI) study that’s performed by Planning Perspectives (ppi1.com), a study that’s now in its 12th year.

And when I ask John Henke, president of Planning Perspectives, about the performance of two OEMs in the study, his responses include:
• “I don’t have a clue.”
• “I have no explanation.”
• “I was shocked when I saw the numbers.”

Given that Henke is well versed in not only the auto industry but in assessing survey results (Planning Perspectives has been doing this sort of thing since 1990), this mystification (which may be unraveled by now, as he was going to be diving deeper into the results to try to find out what happened) is profound.

It’s this: Toyota and Honda, the perennial leaders in the study of how suppliers assess their OEM customers, have fallen to their lowest rankings in 11 years. They’ve become, well, average.

Briefly, there are three categories: “Very Poor-Poor,” which has a numeric range from 100 to 250; “Adequate,” which runs from 251 to 350; “Good-Very Good,” which is 351 to 500. That 500 is a bit of numeric Shangri-La, as the highest score received by the group of OEMs including GM, Ford, Chrysler, Nissan, Honda, and Toyota is 415, which Toyota achieved in both 2005 and 2007.

The basis of the results for this year’s study are the responses from 564 sales persons from 439 suppliers, which represent 62% of the OEM’s annual buy, and 39 of the top 50 North American suppliers. The real deal.

Whereas Toyota was at 327 in the 2011 WRI, it has fallen to 296. In 2011 Honda was at 309; it is now at 293.

Henke suggests that what accounts for such changes—to the extent that he is able to make an assessment—are probably factors that are slight, not major. “I don’t think there is any single point or circumstance that you can point to as a cause,” he says, then adds, “I think that it is almost a slight change in culture.” And while he says it is a “slight change,” he acknowledges, “but it is a change.”

Lest you think, “Ah, how the mighty have fallen,” know that Honda’s nadir of 293 is 26 points higher than Ford’s 267 third-place ranking. Henke points out that for the last three years Ford has pretty much been unchanged (264 in ’10, 271 in ’11) and that “Ford down through Chrysler are the same from a statistical standpoint.” Nissan is fourth with 256, GM is at 251, and Chrysler is last at 248. Said another way, they’re all clumped around the bottom of the “Adequate” category. It should be noted that if Henke—who is also a professor at Oakland University—were grading the companies, GM and Chrysler would get “Most improved,” as last year they were at 236 and 221, respectively.

And about Toyota and Honda he says, “They are still doing it better than anybody else. If the three domestics and Nissan want to get better, they are going to have to get more like Toyota and Honda.” He adds, “Toyota and Honda need to get more like they used to be than they are today.”

This is not a popularity contest. Henke says of the study, “The WRI is highly correlated to supplier trust.” On a personal level you know that you probably have better relationships with those you trust than those you don’t, and that when you’re dealing with those whom you don’t trust, you’re holding back lest you get taken advantage of.

While there is some of the Golden Rule going on here, there is also gold in better working relations. That is, Henke points out that suppliers who characterize their relationships with an OEM as “good” provide more cost reductions than those who have “poor” relations.

In an environment where every OEM is competing harder than ever and still dealing with the cost pressures that are a hangover from the recession, having suppliers working in a positive way can make a difference, an important difference.

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