The Price of Imperfect Processes

Study: Broken RFQ processes, lack of internal visibility costing auto suppliers millions in lost business

Dearborn, MI  September 20, 2002  Broken processes for responding to requests for quotes, along with a lack of visibility into internal systems, are combining with other process-related factors to cost auto industry suppliers millions in lost new business opportunities, according to a new study from the Center for Automotive Research.

The two-part study, titled "Automotive Suppliers and the Revenue Acquisition Process: What's Working, and What's Not?", looked at how automotive suppliers coordinate all the people and workflow involved in identifying, analyzing, evaluating and responding to customer bid requests. Salion, a provider of customer relationship management solutions for auto industry suppliers, sponsored the research project.

Part one of the study examined 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 such problems such as late quotes, errors and inaccurate pricing models.

Key process findings included the fact that on average, suppliers respond to 495 RFQs each year, or nearly two every business day, and they 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.

Large suppliers spend on average $11 million a year preparing new business RFQs, while smaller suppliers spend $6.1 million, but together they have only a 25 percent success rate in winning the new business. Average revenue per new business RFQ for large suppliers is $73.8 million and $3.0 million for small suppliers.

In addition, 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. Suppliers generally see their company's revenue acquisition process as being inefficient, with "missed deadlines" and "getting the right people to devote time" as major problems. And yet 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.

Finally, one-third of the suppliers reported that errors in pricing submitted to the customer were a major problem, and suppliers' pricing models were found to have a variance of about 25 percent from actual costs. Cost models at large suppliers have a variance of plus or minus $1.5 billion from actual costs, and plus or minus $40 million at smaller suppliers.