Value framework

VALUE

9 June, 2011

© 2010 The Mpower Group, Inc. All Rights Reserved. Unauthorized Duplication, Storage or Transmission Strictly Prohibited.

OptimalOptimal

Value Relationship

Total Value

(Quality and quantity of

services suppliers delivers)

YOU

Wants to

increase

THEM

Wants to

increase

• Focus on cost not value creation

• Cost savings can actually “destroy” value

• Sourcing measured on cost savings only

• Adversarial supplier relationships

• Adversarial relationships with internal owners

• Not all internal leaders “value” cost reduction

• Disconnect between suppliers and external customers

Challenges

Most Companies Focus on Cost or TCO

2

MATURITY

Traditional Relationship

Material(Cost, price,

volume)

Material(Cost, price,

volume)

YOUTHEM

Wants to decrease

Wants to

Increase

Lifecycle Relationship

Total Cost(Material, labor, disposal, etc.)

Total Cost(Material, labor, disposal, etc.)

YOU

Wants to decrease

THEM

Wants to decrease

LOW HIGH

LOW

HIGH Typical Strategic Sourcing & SCM

Focus

Typical Strategic Sourcing & SCM

Focus

Significant value within Supply Chain not captured

© 2011 The Mpower Group, Inc. All Rights Reserved. Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 4

We are leaving VALUE on the table doing what we currently do the way we are doing it

Untapped TCO Potential

Current SC (Purchasing) Performance

TimeLow

T.C.O.

Untapped Value PotentialValue Focused Processes


CLIENT CLIENT

Price CLIENT CLIENTSupply BaseSupply Base

Value exists across the end-to-end Supply Chain

CustomersCustomers

ValueSupply BaseSupply Base

CustomersCustomersValue

5

TCO CLIENT CLIENTSupply BaseSupply Base CustomersCustomers

Who is tasked with capturing the VALUE across the end-to-end Supply Chain?


Examples of Value Contributors Client Example

6


Value Opportunities & Activities

•Increased cost predictability− “Should-cost” model− Strategic planning assistance

•Optimized cost structures− Fixed cost/asset reduction− Shift to variable costs− Working capital reductions− Dynamic arbitrage models

•New strategic cost differentiators using Total Cost of Ownership

− Explore TCO deviations to capitalize on current market opportunities

− Competitive teardown analysis− Improved hedge effectiveness− Cost escalation mitigation


•Increased cost predictability− “Should-cost” model− Strategic planning assistance

•Optimized cost structures− Fixed cost/asset reduction− Shift to variable costs− Working capital reductions− Dynamic arbitrage models

•New strategic cost differentiators using Total Cost of Ownership

− Explore TCO deviations to capitalize on current market opportunities

− Competitive teardown analysis− Improved hedge effectiveness− Cost escalation mitigation

Value OpportunitiesClient Example

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•ABC Co. becomes a "customer of choice“

•Joint ABC Co.-Supplier− Research and development− Solution-selling− New product/market introductions

•Sourcing cycle time compression

•Increased assurance of supply during periods of supply constraint

•Leveraged supplier expertise− Back-end systems linkages and

integration− Process understanding− Operational execution

• Supplier responsible for QDC

• Expanded supplier benefits beyond short-term revenue goals


•ABC Co. becomes a "customer of choice“

•Joint ABC Co.-Supplier− Research and development− Solution-selling− New product/market introductions

•Sourcing cycle time compression

•Increased assurance of supply during periods of supply constraint

•Leveraged supplier expertise− Back-end systems linkages and

integration− Process understanding− Operational execution

• Supplier responsible for QDC

• Expanded supplier benefits beyond short-term revenue goals

Value OpportunitiesClient Example

8


Value Illustrations

ManufacturingHamburger

Business Units may place more importance on “Value” than Cost

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Delivery andContinuity of Supply

Stakeholders

Stakeholder’sStakeholders

Stakeholder’sStakeholder’sStakeholders

Process, Product, Service Quality

Cost Competitiveness

Demand Planning

Risk Management

Supplier RelationshipManagement

Standardization

Safety, Operations, Integrity

Operational Advantage

Product Lifecycle Management

Business / Process Simplification

Industry / Government Compliance

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• Your requirements

Focusing on Value dramatically changes:

• Your stakeholders

• The level of change management required

• The metrics that drive/measure success

• The way you engage suppliers AND customers

• Your contribution to the organization

Value Influence Power

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Total Cost of Ownership or Exceptional Business Results? Best Practices VS. Next Practices

High

Low

TIME

VA

LU

E

Value Focused Sourcing Curve

T.C.O. Curve

Current “Sourcing” Performance

AEIOU

AEIOU

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Questions?

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Facilitated Workshop - ACTIVITY

• Break into TWO groups– Goods– Services

• As a group, select a category to discuss• Identify the PRIMARY stakeholders for the category

– List their Value Contributors• Identify the SECONDARY stakeholders for the category

– List their Value Contributors• Identify TERTIARY stakeholders for the category

– List their Value Contributors• Discuss how these Value Contributors may impact

Category Management• Summarize• Regroup and share key insights

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Facilitated Workshop – Possible Questions

• Purchase PRICE variance is “easy” to quantify, but are there any specific challenges?– Baseline for items never purchased before– Currency fluctuations

• What about VOLUME variance / Demand Management?– Buying up to budget amount– Volume variance due to economic conditions

• How do we measure the value of QUALITY?– Price of Non-Conformance

• How to we recognize COST AVOIDANCE?– Hedging

• How do we measure the value of SPEED?• What happens when the VALUE is recognized by other departments?

After usual business cycles?• What about measuring the impact of other value drivers that we know are

“the right thing to do”?– Flexibility– Innovation– Sustainability

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Facilitated Workshop – Summary Questions

• Who do we need to “sell” on the value of VALUE?– CFO– General Managers– Suppliers– Customers

• Does the current Sourcing & Procurement organization have the requisite skills/competencies to focus on VALUE?

• How do we shift the culture of the enterprise away from cost/TCO towards VALUE?

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Value framework

Business

Transcript of Value framework