So This Happened on the Show Floor at IEC2019

“I tell my suppliers to use you all the time.”  – Exact words from an engineer in charge of purchasing key components for a major automaker when he stopped by our booth at the International Elastomers Conference in Cleveland.

“Not all of them listen and there’s one I really wish would hear me. They tell me ‘there is no money for more software and testing’. But we use your software internally and we KNOW it can help them. This supplier has been working on a bushing for us for over a year and they still can’t hit our requirements.”

He went on to tell me how the supplier’s current design is not sufficiently evolved. How it is too risky. How it might compromise vehicle performance.  How he can’t take chances.  How he sure wished they would hear what he’s been saying because he really doesn’t want to pull their business and go to another source but he is running out of time. “I can’t wait much longer.”

“We could use your tools, but profits are measured in pennies. Rubber is a tough industry with low margins and high competition.”  – Exact words spoken probably 15 minutes later from an engineer with a major Tier 2 supplier. This fellow went on to lament how he just had equipment moved out of his facility to another division after losing a contract with a big customer.  “Corporate” decided the equipment would be better utilized elsewhere.  “It’s hard for us to bring in new technology unless our customers will pay for it.”

“Look at the ROI.” – Exact words from Endurica’s president as we were discussing these conversations after the show.  We give out 100 Grand bars at our booth to kick start this kind of conversation, but there is easily more than $100,000/year at stake.  Have you ever calculated your development costs? What if you had durability right the first time, every time? Here is a typical scenario – you can put in your own numbers.  This isn’t the only way to estimate the ROI.  You could also come at it like we did here, or here.

Traditional Development Process With Endurica
Compound Selection 2 months + $20,000 Same
Product Design 2 months + $20,000 3 months + $30,000
Mold and Tooling 6 months + $50,000 Same
Prototype Production 3 months + $25,000 Same
Component Testing 3 months + $25,000 Same
Fleet/Field Testing 12 months + $100,000 Same
Regulatory Compliance 1 month + $10,000 Same
Sub-total, Per Iteration Cost 12 months + $250,000 12 months + $260,000
Development iterations per project launch 2x Right the first time
Total Cost 24 months + $500,000 12 months + $260,000
Development Cost Savings, per product launch 12 months + $240,000

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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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