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Innovation Separates Suppliers

Suppliers with the ability to (1) develop innovative products that command pricing power from OEMs and (2) have the ability to develop a global manufacturing footprint capable of optimizing production in low-cost regions will prevail in the long-run.

Suppliers with the ability to (1) develop innovative products that command pricing power from OEMs and (2) have the ability to develop a global manufacturing footprint capable of optimizing production in low-cost regions will prevail in the long-run. Those are the findings of a recent study of the 31 largest, publicly-traded global Tier One suppliers conducted by Accenture (www.accenture.com). As if trying to balance that equation were not difficult enough, those suppliers that fail to follow this formula will likely be picked apart by private equity investors. Richard Spitzer, global managing partner of Accenture’s automotive practice, says like the consumer electronic industry, many auto components that once were considered high-tech in are becoming commoditized, especially those that consumers cannot directly interact with, like exhaust and lighting systems. On the flip side, in-vehicle electronics, most notably telematics, will continue to prosper. “I think automatic collision notification and other related safety systems will be what people are willing to pay for,” he says. (Maybe those OnStar fear commercials are on to something?) He also says suppliers must continue to invest capital in research and development functions, even when times are tough, with an emphasis on reducing product lifecycle times. “The refresh rate for products has to be pretty strong… a matter of a couple of years,” he says. Spitzer also warns of increased competitive pressure from suppliers in emerging market countries, including India and China, especially since those regions of the world are growing their technology prowess exponentially. “The companies that are doing well are the ones that are well down the road of having their low-cost producer model in place and staying out in front of those areas that continue to be valued,” Spitzer says. He predicts the supplier community will continue to consolidate as the number of Tier One suppliers falls to 100, from a level of 600 in 2000.—KMK