Durability Simulation and the Value of Competitive Advantage

Durability simulation is impacting product development business models in several big ways.  There are cost and risk avoidance impacts.  There is a time-to-market impact.  There is a quality/warranty impact.  And the biggest impact may be competitive advantage.  It’s certainly been in the news.

Rubber component suppliers must compete to win the business of Original Equipment Manufacturers (OEMs).  Having plant capacity is not enough.  The OEM also wants to know that the supplier can meet their durability spec.  The OEM wants to know that if there is a problem down the road, the supplier knows how to find it and fix it quickly.  It is a strong competitive advantage to be able to show the OEM a simulation of the component operating under their loads, along with fatigue calculations that support their warranty.

What is the value of this advantage?

Let’s assume that you are competing with 2 other suppliers for a contract worth $1M.  Since there are 3 competitors (including yourself), you can say that before award, the contract is, statistically speaking, only worth 1/3 of $1M to each competitor.  But at award, the winner takes all, and this means that 2/3 of the ultimate contract value depends completely on being the best option of the three.

This result can be generalized for any number n of competitors.  The fraction of the contract value that competitive advantage wins is (n-1)/n.  Using this rule, we see that for 2 competitors, 1/2 of the contract value comes from competitive advantage.  For 10 competitors, 9/10 comes from competitive advantage.  The more competitors you have, the more valuable it is to have an advantage.

  • How much of your new business win depends on being good with durability issues?
  • Are you the best at solving durability issues? (and do your clients know it!)
  • How much should you be investing in competitive advantage?
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