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Fact-based Negotiation
The New “Way of Life” for Best-in-class Supply Chain
                  Organization



            ...
Supply Chain End-to-End Value Added


2 2 0




1 7 0




1 2 0




 7 0




 2 0




        EMS       Equip provider    ...
Electronic Market Supply Chain

                         Component Supply
WINTEK                          EMS/ODM
Samsung ...
Who Conduct Fact-based Negotiation?

   Nokia
   Honda
   Dell
   HP
   CISCO
   McDonald
   Motorola
Who Participant ?
Building Cost Modeling

  Capture key cost drivers
  Build models by commodity-specific, roll up to final
  model
  Consid...
CSI Methodology
Triangulate improving cost model accuracy and confidence.




                                      Cost
 ...
Cost Input Including..
                 – Process yield improvements resulting from
 Yield
                  • Learning cu...
Cost Input Including..
                      – Commodity price changes
  Raw materials
                      – Sources of ...
Explored Cost Driver
Operations, Facility, Geography, Design

                                                            ...
Fact-Based Negotiation
Intelligence wins the wars

                                                                       ...
Traditional Annual Negotiation

   Begin Loss price adventage          Re-gain price adventage after 6-month

$105


$100
...
Fact-based Negotiation
Achieving 3% Incremental Cost Reduction




                                   Annual
             ...
The Five Ws
 What - The new “Way of Procurement Life ” in 21th
           Century
 Why - Achieving Incremental 3% Cost Red...
Are You Ready to Play?




  Do you have fact-based negotiation playbook?
Contact me



 630-487-9282(cell)
 jerry.nye@sbcglobal.net
 http://www.linkedin.com/in/jerrynye
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Fact Based Negotiation (JerryTalk audio version)

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Fact Based Negotiation

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  • Transcript of "Fact Based Negotiation (JerryTalk audio version)"

    1. 1. Fact-based Negotiation The New “Way of Life” for Best-in-class Supply Chain Organization Jerry Nye
    2. 2. Supply Chain End-to-End Value Added 2 2 0 1 7 0 1 2 0 7 0 2 0 EMS Equip provider Distributor Consumer Paid -3 0 NET PROFIT TAX SG&A COGS
    3. 3. Electronic Market Supply Chain Component Supply WINTEK EMS/ODM Samsung Foxconn LG Winston SHARP Flextronics PCB LG Compal BYD PCB supplier Toshiba End Tyco Tyco Customer Solteras Lite-on Molex Liteon SANMINA Molex Sony VPT Sony Samsung Altus Altus Intel, QUALCOMM, Mcron, STM, TSMC
    4. 4. Who Conduct Fact-based Negotiation? Nokia Honda Dell HP CISCO McDonald Motorola
    5. 5. Who Participant ?
    6. 6. Building Cost Modeling Capture key cost drivers Build models by commodity-specific, roll up to final model Consider the impact of total cost of ownership such as quality, delivery, and technology Begin simply first, and add complexity as needed.
    7. 7. CSI Methodology Triangulate improving cost model accuracy and confidence. Cost Model Data Data Cost Should Cost Design Research RFQ
    8. 8. Cost Input Including.. – Process yield improvements resulting from Yield • Learning curve effects • Process improvements • Product design changes Capacity – Supplier’s capacity utilization, possibly due to: • Capacity expansion utilization • Demand fluctuations • Increased volume uptake Equipment and – New production process or technology process – Depreciation changes from new equipment purchases/upgrades – Factory overhead, e.g. utilities cost, taxes Overhead – Dedicated sales and administrative personnel, R&D – Production location, e.g. moving production to a factory in Location a different region
    9. 9. Cost Input Including.. – Commodity price changes Raw materials – Sources of raw material – Availability of alternate raw material types – New sub-component suppliers Sub-suppliers – Sub-supplier’s cost structure – Macro-economic factors, e.g., Macro economic • Labor rates • Freight costs • Exchange rates – Procurement policies, e.g., Internal policies • Lead time requirements – Supplier or industry profitability, possibly due to: Profitability • Excess or constrained capacity situation • Competitive dynamics
    10. 10. Explored Cost Driver Operations, Facility, Geography, Design Subtotal Equip. Labor Material Step 1: Front End(SMT) x x x x Step 2: Board Test x x x x Raw Yield materials Step 3: Frame Assembly x x x x Step 4: Manual Assembly x x x x Step 5: Unit Test x x x x Capacity Sub- utilization suppliers Step 6: System Integration Test x Yield x Labor Cost Equipment Macro x and process economic Factory O/H x Warranty costs x Package Shipping Internal Overhead R&D x policies SG&A x Margin x Location Profitability Cost Model Total x
    11. 11. Fact-Based Negotiation Intelligence wins the wars Negotiations start with a closing gap between supplier’s prices and best-in-class costs . 7 .2 0 .. 9 .0 0 $80 $70 $50 Direct labor Indirect Scrap Plant and equip-ment Other over- SG&A head Net profit Supplier’s best-in- Supplier labor burden (warranty,shi Should class quote Should cost p-ping) cost cost Target price RFQ Quote
    12. 12. Traditional Annual Negotiation Begin Loss price adventage Re-gain price adventage after 6-month $105 $100 $95 $90 $85 $80 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Market Deflation Contract Price Low than market Price New Conract Price
    13. 13. Fact-based Negotiation Achieving 3% Incremental Cost Reduction Annual Negotiation Saving Incremental Saving Incremental Saving Annual Negotiation Saving
    14. 14. The Five Ws What - The new “Way of Procurement Life ” in 21th Century Why - Achieving Incremental 3% Cost Reduction Who – HP, Dell, CICSO, Apple, Motorola …etc Where – Electronic equipment, consumer market,automobil and food industrial When – Difference between the should-cost and RFQ is >7% How – I can help you
    15. 15. Are You Ready to Play? Do you have fact-based negotiation playbook?
    16. 16. Contact me 630-487-9282(cell) jerry.nye@sbcglobal.net http://www.linkedin.com/in/jerrynye

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