Auto Suppliers Could Gain $700 Million By Improving Their 'Win Rate' 5%

DEARBORN, Mich., Sept. 18 -- A new study released here today shows major auto suppliers are successful in winning new business only 25 percent of the time, and that if this rate could be improved by only 5 percent, they could gain nearly $700 million in annual revenue. The study also shows that 24 percent of large supplier "new business" RFQs are late and miss the submission deadline, costing them an estimated $3.5 billion a year in lost opportunity sales. These and other fundamental process problems are costing suppliers millions in lost revenue. Other key financial results include the following:

-- Large suppliers spend on average $11 million a year preparing new business RFQs, while smaller suppliers spend $6.1 million, but have only a 25 percent "hit rate"

-- Cost models at large suppliers have a variance of plus/minus $1.5 billion from actual costs, and plus/minus $40 million at smaller suppliers

-- Late bids by large suppliers account for $3.5 billion in lost opportunity sales; for small suppliers, the cost is $194 million

-- Average revenue per new business RFQ for large suppliers is $73.8 million and $3.0 million for small suppliers

-- Nearly half the respondents have less than 75 percent confidence their companies will reach their revenue and margin goals

The report was released today at a conference for automotive suppliers called "Suppliers, Profits and Wall Street." It was sponsored by Altarum's Center for Automotive Research in Ann Arbor, Michigan which conducted the research, WWJ Radio and the Society of Automotive Analysts.

The two-part study titled "Automotive Suppliers and the Revenue Acquisition Process: What's Working, and What's Not?" was commissioned by Salion, Inc., a enterprise software company, to examine how auto suppliers manage their so-called revenue acquisition process. The process includes coordinating all the people and workflow involved in identifying, analyzing, evaluating and responding to customer bid requests. Salion offers a suite of software solutions to automate and manage the revenue acquisition process, eliminating errors and misquotes.

Part One of the study identified the current status of suppliers' revenue acquisition practices and identified numerous process problems that are costing suppliers millions of dollars. Part Two analyzed the financial impact of these problems such as late quotes, errors, and inaccurate pricing models.

Key process findings included the following:

-- On average suppliers respond to 495 RFQs a year or nearly two every business day, and expect that number to increase 28 percent in the next five years

-- Suppliers spend on average 134 labor hours processing each RFQ, though the range varies widely

-- One-third of the suppliers reported errors in pricing submitted to the customer was a major problem

-- Suppliers' pricing models have a variance of about 25 percent from actual costs

-- While virtually all suppliers have volumes of data, fewer that 40 percent of their databases allow "visibility throughout the company," hampering bid processing and executive oversight

-- 76 percent of suppliers have a very unfavorable view of replacing their existing RFQ system with one run by a third-party marketplace or exchange

-- By and large, suppliers see their company's revenue acquisition process as being inefficient, with "missed deadlines" and "getting the right people to devote time" as major problems

Part Two of the study took the above data and other key findings and ran them through various economic models to determine their potential financial impact on a typical large supplier.

The models examined the number, cost and revenue implications of new business RFQs, and RFQs for existing business and engineering changes combined, since these are fairly similar process-wise. These two categories were analyzed for both mid-size suppliers (less than $ 1 billion) and large suppliers ($1 billion and more).

The study was conducted in July and August and 61 responses were received. The sample was comprised primarily of upper and mid-level automotive suppliers. Mean revenue of respondents was $1.6 billion, with 17 of them averaging $4.7 billion.