VALUE9 June, 2011
Most Companies Focus on Cost or TCOHIGH                                                                                   ...
But Real Benefits Come From Value Focus                                                                increase           ...
We are leaving VALUE on the table doing what we currently do the way we are doing it                                      ...
Value exists across the end-to-end Supply Chain                      Supply                                               ...
Examples of Value Contributors                                        Client Example© 2011 The Mpower Group, Inc. All Righ...
Value Opportunities                                                                           Client Example              ...
Value Opportunities                                                                           Client Example              ...
Value Illustrations                             Hamburger                                       Manufacturing         Busi...
 Business / Process                                                  Simplification                                      ...
Focusing on Value dramatically changes:                     •      Your requirements                     •      Your stake...
Total Cost of Ownership or Exceptional Business Results?       Best Practices VS. Next Practices       High               ...
Questions?© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Pro...
Facilitated Workshop - ACTIVITY      • Break into TWO groups              – Goods              – Services      • As a grou...
Facilitated Workshop – Possible Questions         •      Purchase PRICE variance is “easy” to quantify, but are there any ...
Facilitated Workshop – Summary Questions         •      Who do we need to “sell” on the value of VALUE?                 – ...
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Value framework

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  • Here is an example of the Opportunities and Activities for, in this case, Cost Competitiveness. Point out that, as we have said, cost is not ignored when you take a TVC approach but it does get looked at differently. Example: Shell took $15 million out of the cost of a $5million Sub-Sea Tree. They did it by focusing on value, not cost re: the build-out of the tree – How do you “save” $15million on an item that costs $5 million? Used standardized design to allow more efficient on-site deployment of the Tree – got oil pumping 12 months more quickly and recovered what otherwise would have been a huge lost opportunity cost Comments re: Opportunities and Activities associated with Cost Competitiveness – not about going to market to get lower price – ask selves how much value sponsors get from cost predictability, from fully documented cost structures, from using cost arbitrage more effectively, etc. ASK: What do participants notice about the Opportunities and Activities? Lead them to: These are focused on value and are much more strategic than is typically the case when organizations take a Cost focus. Explain that we will distribute an Appendix to the workshop materials that contains a similarly generic list for each Value Contributor. The important point is that no Category Team should accept the generic list and try to apply it to their Category. The list must be analyzed and the Team should look to add as many BP specific Opprortunities and Activities as possible to help extract value from their Category.
  • Here is another example for Sub-Sea Trees. Again, point out how a generic list must be adapted to the Category. ASK: What is “customer of choice” and how important / valuable is it? What about joint R&D, compressed cycle, time, etc. Point out: wouldn’t make sense to try to be “Customer of Choice” in every category – challenge is to, first, hone in on the Value Contributors that really make a difference and then identify the Opportunities and Activities that will create leverage around those Value Contributors for your Category Discuss ASK: What are some of the Opportunities and Activities that you would normally expect to see for Sub-Sea Trees related to SRM that are NOT on this list. What are some of the items on this list the surprise you?
  • Key Messages Describe the Two Scenarios Emphasize how a cost focus destroys value when sourcing hamburger or trees
  • Need a couple of slides for this one…on with an arrow going from the outside to the in (Value) and another from the center, out (Cost) Another slide needs to show where factors (from Janus slide 7) fall into the different sections
  • Value framework

    1. 1. VALUE9 June, 2011
    2. 2. Most Companies Focus on Cost or TCOHIGH increase increase Typical Strategic Typical Strategic to Challenges to Sourcing & SCM Sourcing & SCM Wants Wants Focus • Focus on cost not value Focus delivers) creationservices s uppliers Lifecycle Relationship • Cost savings can actually quantity of “destroy” value (Quality and THEM YOU Value • Sourcing measured on cost Total Cost savings onlyTotal (Material, labor, • Adversarial supplier YOU HEM disposal, etc.) relationships Traditional Relationship Value Relationship • Adversarial relationships THEM YOU Wants to Wants to with internal owners decrease decrease • Not all internal leaders Material “value” cost reduction (Cost, price, • Disconnect between volume) Optimal Optimal suppliers and external customers Wants Wants to to decreaseLOW Increase LOW MATURITY HIGH Significant value within Supply Chain not captured© 2010 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 2
    3. 3. But Real Benefits Come From Value Focus increase increase to to Wants WantsHIGH delivers) Typical Strategic Typical Strategic services s uppliers Sourcing Focus Sourcing Focus quantity of (Quality and Value Lifecycle Relationship Total THEM YOU YOU THEM Total Value Relationship Cost (Material, labor, Traditional Relationship disposal, etc.) THEM YOU Wants to Wants to decrease decrease Optimal Optimal Material (Cost, price, volume) Wants Wants to to decreaseLOW Increase LOW HIGH© 2010 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 3
    4. 4. We are leaving VALUE on the table doing what we currently do the way we are doing it s e sse P roc e d c us e Fo V alu Untapped Value Potential Untapped TCO Potential T.C.O. Current SC (Purchasing) Performance Low© 2011 The Mpower Group, Inc. All Rights Reserved. TimeUnauthorized Duplication, Storage or Transmission Strictly Prohibited. 4
    5. 5. Value exists across the end-to-end Supply Chain Supply Price CLIENT Customers Base Supply TCO CLIENT Customers Base Supply Value Value Customers CLIENT Base Who is tasked with capturing the VALUE across the end-to-end Supply Chain?© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 5
    6. 6. Examples of Value Contributors Client Example© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 6
    7. 7. Value Opportunities Client Example 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© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 7
    8. 8. Value Opportunities Client Example Value Opportunities & Activities •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© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 8
    9. 9. Value Illustrations Hamburger Manufacturing Business Units may place more importance on “Value” than Cost© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 9
    10. 10.  Business / Process Simplification  Operational Advantage Stakeholder’s Stakeholders  Standardization  Risk Management  Process, Product, Service Quality  Cost  Delivery and Competitiveness Continuity of Supply  Demand  Supplier Product Planning Stakeholders Relationship Management Lifecycle Management  Industry / Government Compliance  Safety, Operations, Integrity Stakeholder’s Stakeholder’s Stakeholders© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 10
    11. 11. Focusing on Value dramatically changes: • Your requirements • 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© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 11
    12. 12. Total Cost of Ownership or Exceptional Business Results? Best Practices VS. Next Practices High ve ng Cur So urci d oc use F lue Va AEI OU VALUE AEIOU T.C.O. Curve Low Current “Sourcing” Performance TIME© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 12
    13. 13. Questions?© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 13
    14. 14. 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© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 14
    15. 15. 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© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 15
    16. 16. 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?© 2011 The Mpower Group, Inc. All Rights Reserved.Unauthorized Duplication, Storage or Transmission Strictly Prohibited. 16

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