A new US study shows that major automotive industry suppliers are successful in winning new business only 25% of the time, and that if this rate could be improved by only 5%, they could gain nearly $US700 million in annual revenue.

The study also shows that 24% 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:

   — 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% “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

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   — 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% confidence their companies will reach their revenue and margin goals

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

Key process findings included:

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

   — Suppliers spend on average 134 labour 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% from actual costs

   — While virtually all suppliers have volumes of data, fewer that 40% of their databases allow “visibility throughout the company”, hampering bid processing and executive oversight

   — 76% of suppliers have a very unfavourable 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

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.