Sustainable Cost ReductionPresented by Ray Carterof DPSS Consultants                          © DPSS CONSULTANTS          ...
© DPSS CONSULTANTS                     2
Oil and Gas Value Chain                 © DPSS CONSULTANTS                                      3
Key Questions? Can costs be “reduced” or is it processes and    behaviours/attitudes that have to change?   What does “s...
Sustainable defined Capable of being sustained Something that can endure or is able to be  maintained for long periods o...
Sustainable Cost Reduction – TheDPSS 7 Step Process   Step 1 Spend Management and Compliance   Step 2 Identification of ...
The “Context”                        Culture                                           Structure                     Clien...
Tools, Techniques and Processes   Spend Management IT   Contracting models   Category Management   Value Analysis and ...
What is a Non Value Adding Activity? Any activity that does not in some way enable the   cost of that activity to be reco...
Value Analysis –A means of defining “Fit forPurpose”Value Analysis – “A systematic process aimed atensuring that necessary...
Classic Examples…….       Russian Pencil in Space       Swimming Pools                   © DPSS CONSULTANTS             ...
Volkswagen in the USAVolkswagen produce a low cost version of thePassat – savings are being made by using a lesselaborate ...
Spend Management Who spends what? With whom? When? How?                     © DPSS CONSULTANTS                        ...
Supply Market Analysis– Non   Action/StrategyCompetingCartel/oligopoly              Legal action                          ...
The Price of Life… The price of maize is expected to increase by  about 90 per cent on the commodities market by  2030, ac...
Example - S.T.O.P W.A.S.T.E   Standardisation?                   Weight/materials?   Transportation mode?             ...
Stakeholders in the Process – Blockers andBackersChange Agents      High                                                  ...
Case Studies…….                  © DPSS CONSULTANTS                                       18
Nestle Profits from VA  Value Analysis contributed to a reduction in  total water consumption by 27%                     ©...
Laptops – Value Engineering$300 de “specified” laptops – originally developedfor poor children – are now available in the ...
Spend Management - Overpayments  The UK government believes it could save  £264 million lost in overpayments to  suppliers...
Procurements contribution to LGElectronics’ Profitability The creation of an entirely new procurement organisation adoptin...
Pallet company CHEP has awardeda five-year procurementoutsourcing contract to Xchanging. Under the deal, Xchanging will ma...
ProcladProclad recently carried out a case study for MiddleEast operating company looking at carbon steelagainst a clad ma...
Collaboration at Siemens  Purchasing and supply at Siemens made a  “substantial contribution to earnings”  They have bundl...
Leverage at Lloyds At Lloyds TSB and HBOS procurement has contributed £127 million in savings, with over 90% of spend now ...
Standardisation at Ford Ford is planning to standardise its global small compact cars - based upon the UK Fiesta Model    ...
Collaboration and Leverage atKimberlyClark Consumer products giant Kimberly-Clark has set up a global procurement hub to h...
Waste Reduction at BAA Recycling of construction materials, and emphasis on off-the-shelf purchases have helped procuremen...
Target Costing at Tata The Tata Nano car was based on a “target cost” via the use of Value Engineering and Supplier collab...
Benefits….. Supply Chain Engagement Sustainable Environmental Impact Change of mind set – “Want to Need…..”           ...
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Ray carter sustainable cost reduction format 13 06-07 - copy

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A short presentation on how to reduce costs, in a sustainable way

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Ray carter sustainable cost reduction format 13 06-07 - copy

  1. 1. Sustainable Cost ReductionPresented by Ray Carterof DPSS Consultants © DPSS CONSULTANTS 1
  2. 2. © DPSS CONSULTANTS 2
  3. 3. Oil and Gas Value Chain © DPSS CONSULTANTS 3
  4. 4. Key Questions? Can costs be “reduced” or is it processes and behaviours/attitudes that have to change? What does “sustainable” really mean? Tools and Techniques? Who should be involved in the process? Blockers and Backers? 4
  5. 5. Sustainable defined Capable of being sustained Something that can endure or is able to be maintained for long periods of time. Able to be sustained and yet avoid depletion © DPSS CONSULTANTS 5
  6. 6. Sustainable Cost Reduction – TheDPSS 7 Step Process Step 1 Spend Management and Compliance Step 2 Identification of Key Cost Drivers Step 3 Value Analysis and NVA Step 4 Standardisation, Collaboration & Aggregation Step 5 Supply Market Analysis/Non Traditional Step 6 Leverage the Spend and the Relationship Step 7 Monitor and Measure © DPSS CONSULTANTS 6
  7. 7. The “Context” Culture Structure Client Client People Business Models © DPSS CONSULTANTS 7
  8. 8. Tools, Techniques and Processes Spend Management IT Contracting models Category Management Value Analysis and Value Engineering Process Mapping S.T.O.P W.A.S.T.E model Stakeholder Management Models Target Costing Supply Market Analysis ABC Analysis Cost Pool Analysis TCO © DPSS CONSULTANTS 8
  9. 9. What is a Non Value Adding Activity? Any activity that does not in some way enable the cost of that activity to be recovered from the customer Activities that do not improve or enhance the final product or service Activities the customer does not see value in….. © DPSS CONSULTANTS 9
  10. 10. Value Analysis –A means of defining “Fit forPurpose”Value Analysis – “A systematic process aimed atensuring that necessary functions are achieved atminimum costs” © DPSS CONSULTANTS 10
  11. 11. Classic Examples…….  Russian Pencil in Space  Swimming Pools © DPSS CONSULTANTS 11
  12. 12. Volkswagen in the USAVolkswagen produce a low cost version of thePassat – savings are being made by using a lesselaborate axel….. © DPSS CONSULTANTS 12
  13. 13. Spend Management Who spends what? With whom? When? How? © DPSS CONSULTANTS 13
  14. 14. Supply Market Analysis– Non Action/StrategyCompetingCartel/oligopoly Legal action Set up consortium Offer partnership Break the cartelMature Market – no threats Develop new suppliers Reduce entry barriersImmature/growing market Seek out ambitious/high potential suppliersGovernment or International Build understanding,Regulation and restrictions loopholes, seek alternatives 14
  15. 15. The Price of Life… The price of maize is expected to increase by about 90 per cent on the commodities market by 2030, according to a report by Oxfam. © DPSS CONSULTANTS 15
  16. 16. Example - S.T.O.P W.A.S.T.E Standardisation?  Weight/materials? Transportation mode?  Acquisition Costs? Outsource?  Specification? Process Re engineer?  Take out the gold plate?  Elimination? © DPSS CONSULTANTS 16
  17. 17. Stakeholders in the Process – Blockers andBackersChange Agents High Advocates Opponents x x The only groupUnderstandin driving changeg of theproject Indifferent Followers Blockers Low Against For Agreement with the project © DPSS CONSULTANTS 17
  18. 18. Case Studies……. © DPSS CONSULTANTS 18
  19. 19. Nestle Profits from VA Value Analysis contributed to a reduction in total water consumption by 27% © DPSS CONSULTANTS 19
  20. 20. Laptops – Value Engineering$300 de “specified” laptops – originally developedfor poor children – are now available in the US andthe EU © DPSS CONSULTANTS 20
  21. 21. Spend Management - Overpayments The UK government believes it could save £264 million lost in overpayments to suppliers © DPSS CONSULTANTS 21
  22. 22. Procurements contribution to LGElectronics’ Profitability The creation of an entirely new procurement organisation adopting “best practices” has resulted in $5.9 billion in direct material savings on a spend of $24.8 billion and $200 million savings on non-material, indirect spend of $7.5 billion © DPSS CONSULTANTS 22
  23. 23. Pallet company CHEP has awardeda five-year procurementoutsourcing contract to Xchanging. Under the deal, Xchanging will manage spend of £75 million on behalf of CHEP Europe. It plans to consolidate spend management across CHEP’s European businesses. © DPSS CONSULTANTS 23
  24. 24. ProcladProclad recently carried out a case study for MiddleEast operating company looking at carbon steelagainst a clad material. The pipeline in question is14 inch diameter with an anticipated design life of17 years.Total Capex/Opex costs for a carbon steel pipeline$14,956,000Total Capex/Opex costs for a carbon steel cladpipeline $9,996,057 © DPSS CONSULTANTS 24
  25. 25. Collaboration at Siemens Purchasing and supply at Siemens made a “substantial contribution to earnings” They have bundled a large share their of purchasing volume – a total of 44 per cent – across sectors (industry, energy and healthcare). © DPSS CONSULTANTS 25
  26. 26. Leverage at Lloyds At Lloyds TSB and HBOS procurement has contributed £127 million in savings, with over 90% of spend now being through its top 1,000 suppliers © DPSS CONSULTANTS 26
  27. 27. Standardisation at Ford Ford is planning to standardise its global small compact cars - based upon the UK Fiesta Model © DPSS CONSULTANTS 27
  28. 28. Collaboration and Leverage atKimberlyClark Consumer products giant Kimberly-Clark has set up a global procurement hub to help cut costs by $500 million by 2013. © DPSS CONSULTANTS 28
  29. 29. Waste Reduction at BAA Recycling of construction materials, and emphasis on off-the-shelf purchases have helped procurement save around £260 million at BAA © DPSS CONSULTANTS 29
  30. 30. Target Costing at Tata The Tata Nano car was based on a “target cost” via the use of Value Engineering and Supplier collaboration © DPSS CONSULTANTS 30
  31. 31. Benefits….. Supply Chain Engagement Sustainable Environmental Impact Change of mind set – “Want to Need…..” © DPSS CONSULTANTS 31
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