Suppliers that closely align their competitive strategies and business models with the value their products offer are leading their peers in revenues and profitability, according to a new study from Accenture.
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High performers in the supplier industry generally fall into one of three groups:
- Low-cost producers – These high performers optimise their material and production costs on a global basis. They take advantage of low cost sources of goods and services in places such as China, India and Eastern Europe, and they locate production facilities to optimize scale and total cost. For them, a relentless pursuit of lean overhead is critical to success.
- Differentiated producers – Successful suppliers in this segment (e.g., suppliers of electronics, safety systems, etc.), push the innovation envelope. They excel in pioneering R&D and engineering, fully integrate product development with OEMs and have highly technical niche product capabilities that demonstrate pricing power with the OEM and the consumer.
- Hybrid producers – Some suppliers achieve high performance with both commoditised and highly engineered portfolios – but do so by establishing operating companies dedicated to either the commoditized or highly engineered segment. They manage these through a holding company
The study looked at 31 of the top Tier 1 suppliers, all quoted companies.
The top five companies in the study maintained superior revenue growth (12% average annual growth over the past five years) and superior profitability (5.4% compared to 4.0% average EBIT margins over the past five years).
Other common success factors amongst high performance companies include the fact that they invest more than their peers in R&D, and that, while they did not conduct any more or less M&A activity than the average, they executed post-merger integration more successfully.
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