Non-LinearPerformance Pricing

(NLPP)

The smart price analysis solution

THE SAPHIRION MISSION:

OUR CLIENTS MAKE OPTIMALDECISIONS BASED ON THE MOST PRECISE INSIGHT INTO THEIR DATA.

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COMPANY PROFILE

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Founded 2006 in Germany

NLPP in development since 2008

NLPP method & tool single main product

Since 2011 located in Zug, Switzerland

Team members have 20+ years of experience in management & purchasing consulting, computer science & mathematics

NLPP METHOD

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NLPP closes the gap to cover 100% of the purchasing volume while speeding up and extending the costing process with a value-based perspective.

Fast approach

Portfolio price consistency

Identify saving potentials

Negotiation basedon value drivers

Extensive approach

Part cost consistency

Understand saving potentials

Negotiation based on cost drivers

Covered Purchasing Volume60-90% 10-40%

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Bottom-UpCosting

NLPP analyzes all kind of product prices according to customer value/benefit/performance and shows you immediately which products or services have a good or bad price/performance ratio.

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1,17€3,13€1,25€0,50€0,00!

0,50!

1,00!

1,50!

2,00!

2,50!

3,00!

3,50!

4,00!

4,50!

0,50!0,00! 1,00! 1,50! 2,50!2,00! 3,00! 3,50! 4,00! 4,50!

For an NLPP analysis, the performance / value of the products is measured by the features & characteristics which are important for the user.

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Number of Cylinders

Power

Capacity

Life time mileage

Charging Time

Capacity

Volume

Voltage

Weight

Life Time

Volume Efficiency

Part Design

Gas mileage

Weight

Torque

Max. Revolution

NLPP uses the magic of mathematics to find out how the selected performance drivers influence the price and come up with a target price formula build including those performance drivers.

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Charging Time

Capacity

Volume

Voltage

Weight

Lifetime

Volume Efficiency

Part Design

Any sufficiently advanced technology is indistinguishable from magic.-- Arthur C. Clarke, (1917–2008), English science fiction writer

Targetprice = 0,345 argi e, 5 apacit0,044 i eti e

NLPP benchmarks prices by customer value and performance, hence, shifts your focus from a “discussion about supplier costs” to a “discussion about customer value”.

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ManufacturerPricing is resource driven and

based on cost-calculation(Cost of Production)

PurchasingSeeks for parts with specific functions and properties with the best price performance ratio.

Cost ⇾ Value(NLPP)

NLPP calculates prices by customer value and performance, hence shifts your focus from a “discussion about price” to a “discussion about customer value”.

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CustomerPrices are consistent with the performance and comparable

SalesArgues with benefits and uses consistent price-performance ratio

Value ⇽ Price(NLPP)

Engineering(NLPP)Evaluation of alternatives while maximizing customer value at

optimal costs

Changes in performance can be assessed monetarily using the NLPP prediction formulas and enable engineering to evaluate product variants quickly and precisely.

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Cost Estimates(NLPP)

Price Estimates(NLPP)

NLPP thus connects purchasing, engineering and sales through a uniform method which quickly and accurately assesses the value of prices & costs.

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PurchasingBenchmarks, potential savings,

relocation, price consistency

EngineeringPrice estimates, similar parts,

cause effect relationships

SalesValue based argumentation,

consistent pricing

Which productshave potential

savings?

What is a justified or possible price for a

new product?

NLPP MECHANISM & BACKGROUND

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The „magic“ about NLPP is that it finds the best price predicting formula using your data and calculates the target price for every part number which equals the product value.

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Target Price

Price PredictingFormulaNLPP

€ = p0+p1x1+p2x2

€ = p0+p1x1+p2x2Target Price Formula

Product Parameters, Quantity &

Actual Price

Product Parameters, Quantity

Target Price

Act

ual

Pri

ce

MARKT BENCHM

ARK

BEST PRACTICE

TOO

EXPE

NSI

VE

70 !0 ! 10 ! 20 ! 30 ! 40 ! 50 ! 60 ! 80 ! 90 !

0 !

10 !

20 !

30 !

40 !

50 !

60 !

70 !

80 !

90 !

NLPP calculates three price benchmarks from your data and shows which products aremore expensive (above benchmark line) or cheaper (below benchmark line) than the three benchmarks.

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Worst-Practice25% more expensive / 75% cheaper

Target50% more expensive / 50% cheaper

Best-Practice75% more expensive / 25% cheaper

25%

75%

MARKET BENCHM

ARK

70 !0 ! 10 ! 20 ! 30 ! 40 ! 50 ! 60 ! 80 ! 90 !

0 !

10 !

20 !

30 !

40 !

50 !

60 !

70 !

80 !

90 !

50% of all partscost more

50% of all partsare cheaper

Act

ual

Pri

ce

Target Price

NLPP finds out how the market values a change of the performance parameters that are important to you in money.

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Company Marketyou need all data the

company has

World Marketyou need all existing data

Analysis Marketyour NLPP

data

The market you analyze is defined

through the data you use to calculate the

target price formula.

Regression methods provide reliable results only if their mathematical pre-conditions are fulfilled and the method correctly capture the structure of the input data.

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Only models that capture

the structure of the input

data and extract as much

information as possible

give reliable and usable

results.

It is easy to calculate many different regression models which do not capture the structure of the input data, but still calculate an (unreliable and incorrect) result for each part number.

Only correct "performance pricing models" can represent the product preferences (defined by the selection of the performance drivers) and the market situation (part numbers with parameters, quantity and price).

The methods used must extract the maximum amount of information from the input data (gain of knowledge) in order to calculate a result model with the best possible predicting power.

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Depending on your input data NLPP automatically selects the regression method & product properties that gain most information from your input data for the best possible price predicting model.

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LPP-LSM (linear, least squares method) is the simplest and most common regression method.

The five additional methods are uniquely available in NLPP.

Not

es

High

Low HighAccuracylinear non-linear

LPP-QR

LPP-LSM(Standard)

NLPP-QR

NLPP-LSM

LPP-CR NLPP-CR

Rob

ustn

ess

Comparison of NLPP-QR (left, best model) with LPP-LSM (right): You can clearly see that LPP-LSM predicts negative target prices and that the LPP-LSM target price formula must therefore be wrong.

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In 96% of all cases, only one of the five unique NLPP methods can ensure that the information contained in the input data reaches the target price formula correctly and accurately.

19Basis: Calculation of the best target price formula for 107 data sets from different industries and product families.

4%6%

21%

14%37%

18%

LINEAR METHODS(31%

)

NON-LINEAR METHODS (69%)

Distribution of

"NLPP Best Model"

Methods

High

Low HighAccuracylinear non-linear

LPP-QR

LPP-LSM(Standard)

NLPP-QR

NLPP-LSM

LPP-CR NLPP-CR

Rob

ustn

ess

A statement like "LPP-LSM may not give a perfect result, but still good enough" leads to the use of unrealistic results and puts operational purchasing at a high risk.

Unrealistic models

calculate random target

prices and therefore also

random potentials

savings.

96% chance that LPP-LSM models are unrealistic.

An LPP-LSM would be significantly more unrealistic (≧ 20,000 times) in almost all cases than the best NLPP model.

Results calculated with unrealistic models have random characteristics and weigh the user in false security.

An unrealistic model uses only a fraction of the information contained in the input data.

Good Input ⇾ Bad Output

„If all you have is a hammer, everything looks like a nail“

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Linear (LPP) and non-linear (NLPP) methods differ fundamentally in the assumption of how product properties impact the price.

Basic Idea The change of a product property by one unit changes the price by a constant EUR value.

The changes of many product properties are summed.

Targetprice = 2€ * Width[cm] + 3€ * Length[cm]

1cm Width change always costs 2€1cm Length change always costs 3€

How much are 3cm width and 5cm length?

2€ * 3cm Width + 3€ * 5cm Length = 6€ + 15€ = 21€

2€ * 6cm Width + 3€ * 10cm Length = 12€ + 30€ = 42€

The change of a product property by one unit changes the price by a constant % value.

The changes of many product properties are multiplied.

Targetprice = e(2% * Width[cm] + 3% * Length[cm])

1cm Width change costs ... € - no fixed amount1cm Length change costs ... € - no fixed amount

How much are 3cm width and 5cm length?

e(2% * 3 cm Width + 3% * 5cm Length) =e(2% * 3 cm Width) * e(3% * 5cm Length) =1,061836547€ * 1,161834243€ = 1,23367806€

e(2% * 6 cm Width + 3% * 10cm Length) =1,127496852€ * 1,349858808€ = 1,521961556€

Linear Non-Linear

Example

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LPP-LSM can only use constant "differences" and thus only represent the simplest relations, whereby large numbers have considerably more weight and the result is strongly distorted.

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-20

0

20

40

60

80

100

120

140

1 2 3 4 5 10 25 50 100

NLPP-Up NLPP-Down LPP-Up LPP-Down

Price NLPP-Up NLPP-Down LPP-Up LPP-Down

1€ 1,25€ 0,80€ 26,00€ -24,00€

2€ 2,50€ 1,60€ 27,00€ -23,00€

3€ 3,75€ 2,40€ 28,00€ -22,00€

4€ 5,00€ 3,20€ 29,00€ -21,00€

5€ 6,25€ 4,00€ 30,00€ -20,00€

10€ 12,50€ 8,00€ 35,00€ -15,00€

25€ 31,25€ 20,00€ 50,00€ 0,00€

50€ 62,50€ 40,00€ 75,00€ 25,00€

100€ 125,00€ 80,00€ 125,00€ 75,00€

500€ 625,00€ 400,00€ 525,00€ 475,00€

10.000€ 12.500,00€ 8.000,00€ 10.025,00€ 9.0975,00€

Method Constant Value Upper Price (Up) Lower Price (Down)

LPP 25 € Price + 25 € Price – 25 €

NLPP 25 % Price * 1,25 Price / 1,25

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To find potential savings and to calculate price predictions NLPP offers many advantages compared with other methods.

NLPPCost analysis /

Cost structure analysis

FocusFocuses at the price

in proportion to customer valueTries to understand

the costs of the supplier

DataUses the data treasure of

many different partsConcentrates upon few part numbers

TimeResults for thousands of part numbers

are quickly available and useableApproach doesn’t scale for

many part numbers

InformationOnly uses clearly defined & measureable

properties of partsMany assumptions, estimates, “black

box” databases, production know-how

RobustnessGives stable and robust results with

already few and not perfect dataThe value of one parameter can strongly

influence the calculated costs / prices

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The benefits of NLPP are the universal methodology and calculation speed of precise target prices per part number, providing deep insights into complex parts portfolios.

Smarter

Better

Faster

Only one method for many use cases rather than many different à Benefits from learning and experience are significantly greater, because nobody becomes expert in many different methods.

Consideration of entire parts portfolios, with clear and precise results per part number à Concrete measures with clearly defined implementation targets.

NLPP results can not be achieved with other methods à NLPP potentials can not be found differently à Not using NLPP = lagging behind the possibilities.

Many use cases of which "finding savings" is only a simple one à Much bigger and structured knowledge gain for part families than through the "I do it my way in Excel” approach.

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CLIENT REFERENCES &USE-CASES

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Especially for complex assemblies or aggregates, NLPP is excellently suited, because with only a few details, precise target prices can be calculated very quickly.

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Used Parameters

Type (textual: AC, DC, ...)

Weight (kg)

Electrical Output (kW)

Revolutions (1/s)

Voltage (V)

Transmission Ratio (i)

Break (textual: yes, no, ...)

Length (mm)

Width (mm)

Heigth (mm)

Torque (Nm)

Current (A)

Frequency (Hz)

Number of Poles (#)

Power Efficiency Class (textual: IE2, IE3, ...)

208 small / mid-sized electric motorsca. 2 Mio. EUR PV-20,5% potential savings identified10 part numbers covered 70% of identified savings

ElectricMotors

PV = purchasing volume

For complex machines it is much easier to find the most important performance drivers that are sufficient to obtain a precise NLPP analysis result.

Used Parameters

Technology Standard (textual)

Accessories Included (textual: yes, no)

Load (Kg)

Arm Length (mm)

42 different manufacturing robotsOnly 4 performance drivers sufficientMore than 200 Mio. EUR PV-8% (market) to -16% (best) potential savings6 part numbers with > 1 Mio. EUR of savings

ManufacturingRobots

PV = purchasing volume

Turned parts are one of the most common commodities and is therefore always in the focus of optimization efforts, nevertheless NLPP analysis can reveal significant potentials.

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Used Parameters

Surfacearea (mm2)

Operating Weight (g)

Diameter (mm)

Length (mm)

Material (textual)

Sum Drilling Length (mm)

Number of Drill-Holes (#)

Machined Volume (mm3)

Surface (textual)

Heated (yes/no)

Top-100 turned parts, ca. 7 Mio. EUR PV-11,6% potential savings identified30-part numbers covered 96% of identified savings

Turned Parts

PV = purchasing volume

Due to the high computing speed, NLPP can deal very well with extensive parts portfolios and creates a very clear picture of the current situation with little expenditure of time.

Used Parameters

Length (mm)

Weight (g)

Diameter (mm)

Tightening Torque (Nm)

Thread Type (textual)

Head Type (textual)

Tip Type (textual)

Surface (textual)

Thread Pitch (mm)

Thread Lenght (mm)

Surfacelenght/area (mm/mm2)

Thread Diameter (mm)

Thread Tollerance

Hardness

Drive Type (textual)

3000 screws, 30 Mio. EUR PV-10% potential savings identifiedNew prices for 1000 part numbers80% of potential savings realizedTotal effort 1/2 day

Tender of 1600 part numbers5,3 Mio. EUR PV with 5 suppliersGoal: Find optimal part number/supplier allocation-22% reduced costs

Fastener

NLPP results give you an information advantage, as inconsistent pricing between products as well as portfolio benchmarks are revealed. This information you can easily use in negotiations.

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Why is the price of these two products different, although the performance is very similar?

Why do we pay more for a lower-performance product than for a higher-performance product?

Why is just this part so expensive?

You are no longer trying to convince the supplier to give you a lower price, instead you…

…simply point out hotspots with inconsistent prices.

…ask the supplier to explain to you why a part price is that high compared to other parts with different performance.

…lead the supplier to those hot-spots you want to discuss.

…know upfront what is a worse, realistic or best practice price for every new or existing part.

ANALYSIS WORKFLOW

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The NLPP workflow consists of a few simple steps. As result NLPP presents new evidence from your pricing and product information.

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Use NLPP's analysisfunctions to drill down into your data and see what you've been missing.

Use the result to develop and effectively implement your purchasing strategy, negotiation tactics etc.

NLPP calculates the best formula in a couple of seconds and uses it to calculate target prices for all records

Import your data into NLPP and select the product properties NLPP should use for calculation

Compile the properties of your products which you expect to influence the price in an XLS sheet.

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Target Price Formula à IT

You use your approvedtarget price formulas in other IT systems.

Part Data à Target Price Formula

You import the part data into NLPP and calculate any number of target price formulas.

3D CAD Models à CSV Part Data File

You automatically classify your CAD data into parts groups and extract all kind of property data into a CSV file.

From your 3D CAD data you can already read out a lot of information and link it to other data from which NLPP calculates a target price formula.

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PRODUCT OVERVIEW

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Your NLPP license consists of software, training and documentation. On top it covers unlimited personal access to our team of experts for support and consulting.

Personal access to ourNLPP expert team

Software

Training

Documentation

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From data import to the result, you will be guided through our NLPP workflow and receive hints and automatic help to get the best possible NLPP result.

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Part Number RecordsCluster

NLPP Workflow

With the help of the interactive evaluation and visualization capabilities of NLPP, you will quickly find all HotSpots that should be subjected to a thorough review.

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Benchmark Potentials

Detailed Results byPart Numbers

Interactive Graph

IMPLEMENTING NLPP

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NLPP is accepted most quickly when it is applied, and the findings are used promptly to make success visible.

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Options

Pro

Contra

Expert-Team

1..N NLPP users perform analyzes for colleagues as an internal service

Fast Know-How gain

Easy to organize

Convenient for all "not involved"

Results of the expert teams not buyers

Rejection is simplified

Group separation "we / they”

Scaling difficult

Key-User

Per Commodity / Departement1..N NLPP users

Broad Know-How gain

Easy to organize

Easier “to cross the chasm”

More resistance at the beginning

More demanding leadership

”Wrong" key users prove that approach does not work

Field-Roll-Out

1..N NLPP users as part of the corporate strategy "Digital Transformation"

Broad Know-How gain

Sustainable ”Digital Transformation”

Motivating employees

Biggest ROI

Strategic management decision necessary

Impact on target systems and communication likely

Perseverance necessary

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NLPP can polarize in an organization as many statements and habits can be easily and quickly checked, resulting in very high transparency based on clear facts.

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Visionaries

Innovators

Pragmatists Retarders

Complainers

10%Are enthusiastic about NLPP and

willing to make their contribution.

80%Are silent observers. They wait for what

experiences others are doing.

10%They always have something to

object to and prevent any change.

TheChasm

NLPP is accepted quickest when the gained knowledge is taken advantage of immediately, showing that the comfort zone can be professionalized with little effort.

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Visionaries

Pragmatists Retarders

Complainers

10%Pilot cases & fast success

Management support necessary

80%Strategic story by management

Use-cases and results from early adaptors

10%Ignore and don’t involve at all.

Success FactorsA clear desire of the management

coupled with perseverance and good communication

Innovators

NEXT STEPS

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NLPP's power and value is best experienced in a real-life environment using some of your data.

NLPPLive Presentation

NLPPTest Analysis

NLPPTrial-Phase

Remote / On Site

Duration 1h – 3h depending on audience size

You collect 20 – 50 records of any part group you are interested in

We do a live NLPP analysis ofyour data

We interpret the results

You get the results either as XLS export or together with a special NLPP version, enabling you to work with the analyzed data set

Remote / On Site

Duration 1h – 1,5h

We show you the NLPPworkflow, from data import to result

We answer all your questions

After this presentation you have a very good understanding about NLPP

NLPPPilot-Phase

NLPPRoll-Out

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During the NLPP-Trial-Phase you use the NLPP tool with your own data while getting fully supported by us. The goal is, that you implement the findings and experience the power of NLPP on your own.

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NLPPInstallation

NLPP Start1..X NLPP

1h Web-Meetings

Training material & Videos

You try the first steps on your own with your data or our test-data

Goal: Getting an overview of NLPP

Required time:2h -4h

Registration

Installation

No additional IT-Systems needed

Required time:15 Minutes

ImplementFindings

Answering your questions

Showing NLPP functions & features within context if your use-case

Training about NLPP method with focus on your use-case

Consulting on how to implement findings

Required Meetings: 1 – 3

You iterate between NLPP and internal discussions about findings

Wrap-Up

Negotiate new prices

Use target-price formula for predictive costing

Feedback findings into organization

Presentation of results

Answering management questions

Defining next steps

Saphirion AGAn der Lorze 9CH - 6300 Zuginfo@saphirion.comT: +41 41 55 20 21 1F: +41 41 55 20 21 2

http://www.saphirion.comhttp://www.nlpp.ch

Saphirion, the Saphirion logo and NLPP are registered trademarks.