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 [email protected]: +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.
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