Comparative intelligence for component manufacturers: Step to enhance business, market, and growth
Various companies present in the market are competing themselves at a high pace in terms of growth, business, sales, no. of assets, supply and demand chain, etc. Now a days, each company specifically the OEM (original equipment manufacturers) are manufacturing their products based on the supply chain which means that OEM is dependent on Tier 1 and tier 2 of the supply chain to manufacture and provide a complete product. For example, Automobile companies like Nissan, Toyota, and others (OEMs) are dependent on tier 1 suppliers which provide various components or systems to implement in the vehicles such as HVAC systems, solutions for implementing electric cars, haptic display enabled systems, automatic car parking systems for vehicles. There are lots of tier 1 suppliers in the domain which are running in the race to provide their services to OEMs. Now the biggest challenge arises when choosing the right Tier 1 supplier out of several Tier 1 suppliers in the market comes into the picture and which tier 1 supplier an OEM shall opt for him.
Various types of analysis can be done to identify which tier 1 is best to select.
- Financial analysis: (Revenue-based such as no. of assets, net income (profit/loss), equity, etc.): Each company has its financial data that define growth in terms of profit and loss of a particular company. Hence to decide which Tier 1 supplier, an OEM should approach, financial analysis has to be performed for that particular company. Financial analysis can conclude the following data which is given below:
- Revenue (Less than 100 million or more than 100 million)
- of assets
- Net Income (comparison with the last financial years to calculate net profit/loss):
- Equity Margin
- Production cost
- Current price
- Expenses and Liabilities
- Cash flow
- R & D budget based: Each company invests some amount of its share to R & D for new advancements or inducements, whether it’s a manufacturing industry, software company, or any suppliers. The amount of R and D budget invested by a particular tier 1 can be the deciding factor for an OEM to approach a tier 1. For example, R & D budget of Bosch is high that means it is investing more money for R & D which means it is approaching new technology and developing an excess of equipment. Hence an OEM like ford or Nissan can approach Bosch for supplying components or technology to them.
- Technological advancement (new technology or innovation in the market): The first and foremost factor which an OEM will look for is the type of innovative technology, tier 1 is providing to them. Hence, those companies (tier 1) who are working majorly on new technologies or creating some innovative ideas to implement in their system, can be approached by OEMs to provide products to OEM. Example: Continental automotive AG is working on AI for vehicles. Hence, OEM can approach to them to implement the new innovative technology into vehicles.
- M/A activities: Merger and acquisition activities (like small companies (tier 1) collaborating with MNC (such as OEM), joint venture agreement between two companies, a small company being acquired by a big company) can be a deciding factor for an OEM to approach tier 1. A tier 1 company who have been approached by maximum no. of other OEMs, can be approached for supplying products or services to OEM. There are specific terms and conditions under which if there is a joint venture agreement between an OEM and a Tier 1, then any other company (OEM) cannot collaborate with tier 1 for supplying products to them. In this case, an OEM can approach the major competitors of the relevant Tier 1 suppliers.
- Opportunity Cost: The cost of product and services offered by a tier 1 is also a deciding factor by OEM to approach to a particular tier 1 supplier. A particular tier 1, provides their products and services at less cost, simultaneously maintaining product quality, services, the volume of production, timeline and other factors can be approached by OEMs for providing services to them.
- Share market (share sold by the companies or share in profit or loss): Each company holds a particular share market and different types of vendors; individuals or small startups buy the share of different companies to invest money in the required direction. Different types of tier 1 companies present in the market have a different share of market value. Particularly their market keeps on increasing or decreasing based on other competitors. Hence, those companies (tier 1) who have a high value of share market can be focused more on collaboration and other joint venture agreement purposes. The small companies whose shares are more and more bought by the other companies are much relevant for OEMs.
- Volume production rate & active market concerning region: A company (tier 1) which provides low volume production rate is the most relevant company rather than the other companies who directly focus on targeting high volume production. This is because lots of new concepts and ideas have to tested first in the pilot market before large volumes are necessary. Also, a small volume of production, in the beginning, provides the idea of market scenario whether this equipment can stay stable in the market or not and various types of demonstration has to be done. Therefore, the companies which are more focusing on low volume production rate, in the beginning, are more relevant than the companies who focus on large volume production. The market of a product manufactured by the company varies concerning geography. For example, a company A manufacture product in Russia but its market is highly active in Japan. Hence, an OEM in Russia cannot approach that company. Those companies who have a high market of components in respective companies, are highly favorable with government regulations and hence are highly relevant for OEMs.
- IP assets (IP portfolio): IP portfolio defines various types of patents or IP activity, that holds by a company. The small startups or other tiers 1 companies who have a high patent portfolio, more innovation in their respective technology domain or more licensing and intellectual legal activities are highly relevant. There are some of the IP factors that come into the picture for deciding which component manufacturer is more relevant.
- Portfolio of patents filed by a company
- Strength of the patents based on quantitative analysis
- Licensing activates of a company
- Products/ Application present in the market for patents
- Patent reassignments activities
Hence, concluding all these factors into the picture, a particular manufacturing company (OEM) can intelligently decide its most relevant component manufacturer (tier 1), when a lot of comparative component manufacturers are exits in the market.