SupplierBusiness The SuRe Index: OEM Supplier Relations Survey · The SuRe final score is obtained by the single scores obtained by each carmaker in the five categories, and each

SupplierBusiness

The SuRe Index: OEM Supplier Relations Survey

2014 edition supplierbusiness.com

Topical Report

IHS Automotive

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2014 edition 2 © 2014 IHS

IHS Automotive SupplierBusiness | The SuRe Index: OEM-Supplier Relations Survey

COPYRIGHT NOTICE AND LEGAL DISCLAIMER© 2014 IHS. No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be permitted in the license agreement between client and IHS. Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage or expense incurred by reliance on information or any statement contained herein. For more information, please contact IHS at [email protected], +1 800 IHS CARE (from North American locations), or +44 (0) 1344 328 300 (from outside North America). All products, company names or other marks appearing in this publication are the trademarks and property of IHS or their respective owners.

IHS AutomotiveSupplierBusiness. Principal Author: Matteo Fini, Senior Consultant, IHS Automotive

ContentsExecutive Summary ........................................................................................................................................................ 4

Quality of relations deteriorates in 2014 as OEMs increase pressure on suppliers to contain purchasing costs .............................................................................................................................................................................. 4OEMs’ pushing the boundaries of cost reduction ................................................................................................... 5OEMs’ lukewarm response to global recalls and Quality Management misalignments .................................... 6OEMs lack consistency in their innovation sourcing strategy ............................................................................... 7

Methodology of the Study ............................................................................................................................................. 8

SuRe Index ..................................................................................................................................................................... 10Profit Potential ............................................................................................................................................................ 10Organisation ...............................................................................................................................................................11Trust ........................................................................................................................................................................... 12Pursuit of excellence .................................................................................................................................................. 12The long-term outlook ................................................................................................................................................ 12

What a High SuRe Means ............................................................................................................................................ 13Cost / Competition Benefits ..................................................................................................................................... 13Benefits in Development ........................................................................................................................................... 13Benefits on Quality and Technology........................................................................................................................ 13

2014 SuRe Index Overall Results ................................................................................................................................ 14FINDING #1: Confrontation on profit-impacting factors is leading to deterioration of relations, results less dispersed. ................................................................................................................................................................... 14FINDING #2: Joint-Purchasing activities of two carmakers often result in a deterioration of relationships with suppliers ............................................................................................................................................................. 14FINDING #3: Chinese OEMs gaining suppliers’ trust ............................................................................................ 15

2014 SuRe Index Ranking – Top 10 Carmakers ......................................................................................................... 17

Profit Potential .............................................................................................................................................................. 18Overall Trend .............................................................................................................................................................. 18OEM level .................................................................................................................................................................... 18

Organisation .................................................................................................................................................................. 19Overall Trend .............................................................................................................................................................. 19OEM level .................................................................................................................................................................... 19

Trust ................................................................................................................................................................................ 20Overall trend ............................................................................................................................................................... 20OEM level .................................................................................................................................................................... 20

Pursuit of Excellence .................................................................................................................................................... 21

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Overall trend ............................................................................................................................................................... 21OEM level .................................................................................................................................................................... 21

Outlook ........................................................................................................................................................................... 22Overall Trend .............................................................................................................................................................. 22OEM Level ................................................................................................................................................................... 22

SuRe by Region ............................................................................................................................................................. 23NORTH AMERICA ...................................................................................................................................................... 23EUROPE .................................................................................................................................................................... 23ASIA ........................................................................................................................................................................... 24

SuRe by Company Size ................................................................................................................................................ 25

FiguresFigure 1: Top of the SuRe Index Ranking ..................................................................................................................... 5Figure 2: Middle of the SuRe Index Ranking ............................................................................................................... 6Figure 3: Bottom of the SuRe Index Ranking .............................................................................................................. 7Figure 4: SuRe Index respondents by region and company size .............................................................................. 8Figure 5: SuRe Index respondents by sector and function ....................................................................................... 9Figure 6: SuRe Index metrics as a schematic ........................................................................................................... 10Figure 7: VW Group SuRe index ratings 2006–2014.................................................................................................. 15Figure 8: Renault-Nissan and FCA SuRe index ratings 2006–2014 ........................................................................ 15Figure 9: 2013–2014 Profit potential results on scale ............................................................................................... 18Figure 10: 2013–2014 Organisation results on scale ................................................................................................ 19Figure 11: 2013–2014 Trust results on scale .............................................................................................................. 20Figure 12: 2013–2014 Pursuit of excellence results on scale .................................................................................. 21Figure 13: 2013–2014 Outlook results on scale ......................................................................................................... 22

TablesTable 1: Like-for-like Average SuRe and year-on-year fluctuation (calculated including only OEMs surveyed since 2006) ..................................................................................................................................................................... 14Table 2: Like-for-like Standard deviation and difference between top and bottom score (only OEMs surveyed since 2006) ..................................................................................................................................................................... 14Table 3: Sure Index North America Top 3 .................................................................................................................. 23Table 4: Sure Index Europe Top 3 ............................................................................................................................... 23Table 5: Sure Index Asia Top 3 .................................................................................................................................... 24Table 6: 2014 SuRe index by automotive turnover of supplier respondent .......................................................... 25SAMPLE



Methodology of the StudySuppliers’ executives are called upon to rate automakers with which they are currently business partners on 29 relational, organisational and commercial aspects of their relationship. The questions cover all the different phases in which the two parties interact, from RFQ (Request for Quotation) through development to warranty liability management. At the start of the study, respondents identify which OEMs they work with. Subsequent questions are filtered so that OEMs are ranked only by suppliers who have dealings with them. This means that different OEMs are rated by different suppliers. Ideally, for consistency, it would be best if each OEM were rated by the same suppliers. However, this is not feasible, since it would require us to ask only executives who have dealings with all the OEMs. However, because the sample size is substantial, we believe the scores for different OEMs are comparable.

Suppliers give a qualitative and subjective rating (e.g. from “Very Low” to “Very High”) to each question and this is translated into a 0 to 4 score. The average of the scores for each carmaker is considered. The 29 KPIs are allocated in five categories. The five categories are: Profit Potential, Organisation, Trust, Pursuit of Excellence and Long-term Outlook. The questions and the concepts subsequently have a different weighting. This is based on the importance that they have in defining the performance of carmakers in managing suppliers to the best interest of both parties, which has been defined with a focus group of suppliers. Weights are assigned as follows: Profit Potential 30%, Trust 15%, Organisation 20%, Pursuit of Excellence 20%, Long-term Outlook 15%. The results obtained for each concept are collected and represented as a numeric value on a scale of 0 to 1,000. This value constitutes the SuRe rating.

Figure 4: SuRe Index respondents by region and company size

Regional Split Company Size

The study leverages the OEM-supplier relations survey, which started in 2005. In 2014, 281 respondents participated in the study, up from the 280 who took part in last year’s study. From its inception, the survey has seen the participation of more than a thousand senior and middle managers working at automotive suppliers and directly interfacing with OEMs’ personnel. In 2014, 47% of respondents were based in North America (down two percent points over 2013), 39% in Europe (up seven percent points from 2013), 13% from Asia and 1% in South America.

Based on the company size declared by respondents in the survey and on the company names to which respondents belonged, we estimate that the 2014 survey has seen the participation of 51 of the top 100 global automotive suppliers, ranked by 2013 revenues. There is however a substantial share of small and medium-sized enterprises with turnovers lower than $500 million, representing over one-third of the sample. This year’s sample also sees a higher share of larger suppliers with turnover in excess of USD2 billion (41% in 2014 versus 32% in 2013).

The study targets respondents working at tier one suppliers of part, components, systems and sub-assemblies. In line with previous editions of the study, Powertrain, which includes engine and transmission components, remains the sector with the largest share of respondents followed by Chassis (tires, wheels, steering system, brake system, suspension system

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and parts belonging to these functional areas) and Interior. The structure of the sample remains comparable to the one recorded in 2011, 2012 and 2013.

Figure 5: SuRe Index respondents by sector and function

FunctionSector

A variety of suppliers’ organisational functions are surveyed in order to include the different perspectives on the business relations and practices of OEMs. Respondents belong to Marketing and Sales, Engineering, Program Management, R&D, Quality and Manufacturing. Marketing and Sales still represents the largest component of the respondent panel surveyed by IHS, which altogether account for over three-quarters of the respondent base.

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2014 edition 10 © 2014 IHS


SuRe IndexThe SuRe (Supplier Relationship) index is a key-performance indicator of the quality of relations between OEMs and their respective supply bases. It gives a quantitative measure to the qualitative assessment expressed by suppliers in the annual OEM-supplier survey conducted by IHS Automotive. The overall rating is given on a 0 to 1,000 scale. A SuRe score higher than 650 is considered somewhat satisfactory. Any result above 700 represents an outstanding achievement, suggesting a sensible management of the relationship with suppliers and a strong commitment by the carmaker to ensure a fair treatment of suppliers. This would ultimately result in an increase in the attractiveness of bidding and winning supply contracts with certain OEMs. The SuRe index itself is not an attractiveness or popularity measure, as only the “Outlook” concept allows suppliers also not in business with an OEM to rate that OEM’s attractiveness as a customer. However in this category we also include two questions regarding the effective opportunity for the supplier to get new or increased business from the OEM and the OEM’s openness in accepting new suppliers in the respondent’s component area, both of which partially mitigate the attractiveness bias typically linked to premium OEMs.

Figure 6: SuRe Index metrics as a schematic

Shortlisting and negotiation

Design completion

Off-tool Off-process

Proft Potential

Organisation

Trust

Outlook

Pursuit of excellence (Technology) Pursuit of excellence (Quality)

RFQ SORPSourcing confi rmation

Tooling release

Off-tool confi rmation

Part and process approval

New contract

Supply

<400 Critical area

<450 Lower threshold

=550 Average

>650 Somewhat satisfactory

>700 Outstanding achievement

The 700 threshold has been achieved only by one carmaker (BMW) back in 2006 with a 712 score. A rating of 450 represents the lower threshold, implying a markedly confrontational attitude towards the supply base, often accompanied by a number of business practices deemed extremely unfair and one-sided by suppliers. An index of 400 is the critical lower threshold, suggesting the willingness of suppliers to remove these OEMs from their portfolio of customers. Chery in 2011 has recorded the lowest historical SuRe index with 365 points in the SuRe index rating. The bands and the grouping of the questions have been defined through a focus group analysis carried out with 39 suppliers, which have indicated the priority areas and the relative weights.

The SuRe final score is obtained by the single scores obtained by each carmaker in the five categories, and each of these groups give the results of the single 29 questions. The 29 questions, which are effectively the 29 KPIs of the index are therefore organized in five categories as follows.

Profit PotentialDefined by the rating of commercial aspects such as demand for annual productivity gains, requests for one-off price

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SupplierBusiness The SuRe Index: OEM Supplier Relations Survey · The SuRe final score is obtained by the single scores obtained by each carmaker in the five categories, and each