You will learn : 1. Learn to Leverage Total Cost to Serve to Pinpoint Cost Reduction Opportunities 2. Understand how Effective Product Development Mechanisms can Yield Cost Reduction 3. Understand how the Balanced Scorecard Methodologies enhance Performance Management Strategies

1. Best Cost Reduction and Performance Management Strategies
Webinar
David Millington, M.Sc.QSM, NPDP, CL6σBB, SPP℠, SPSM3®, CM®, DBA Student
Director of Education

2. Scope of Webinar?
You Learn:
 Learn to Leverage Total Cost to Serve to Pinpoint Cost Reduction
Opportunities
Understand how Effective Product Development Mechanisms
can Yield Cost Reduction
Understand how the Balanced Scorecard Methodologies
enhance Performance Management Strategies

3. Value has three components:
There is a conversion or transformation of materials
and inputs from one stage to the next
All associated activities are done right the first time
Customers are willing to pay for the output or resulting
products and services

4. Cost Reduction Dynamics

5. Rationalization: Making the case for Cost Reduction
• Supply Chain Type
Why?
Make to Stock?
Make to Order?
Engineer to Order?
• Product Types
Why?
• Customers Types
Why?

6. Designing a Total Cost to Serve Matrix
(unlocking Cost Reduction Opportunities)
Definition of Total Cost to Serve:
The identification of the cost of servicing customers at the product and customer levels
(Supply Executive Leadership Course, SPSM4)
Key objective of Total Cost to Serve:
 for organizations to configure their systems to deliver the appropriate service levels
for their customers
 to determine the degree of value customers and supply chains represent

7. Tool 18, Example: NLPAs Total Cost to Serve Matrix
Step
Process X's-(high
level)
Value
Add NVA-E Transport Motion
Over
Production
Over
Processing Waiting
Step
Totals
Labor
Rate
per hr.
Labor
Cost Inputs X's %
1 Receive Order 3.25 3.3 $16.50 $0.015 Listening 10%
2 Get into Position 3.9 3.9 8 $16.50 $0.04 Person 23%
3 Open Soup Pot 0.41 0.41 0.8 $16.50 $0.00 Soup Pot 2%
4 Pull Soup Cup 0.3 0.35 0.35 1.0 $16.50 $0.0046 Soup Cup 3%
5 Fill Soup Cup 3.9 1.22 1.22 3 9.3 $16.50 $0.0428 Soup Cup, 8oz Ladle 28%
6 Close Soup Pot 0.26 0.26 0.5 $16.50 $0.00 Soup Pot 2%
7 Pull Lid 0.3 0.27 0.27 0.8 $16.50 $0.00 Soup Pot 2%
8 Cover Soup 1.75 0.35 0.4 1 3.5 $16.50 $0.02 Lids, Lid Holder 10%
9 Label Cover 1.58 1.2 1.84 5 $16.50 $0.02 Marker 14%
10 Pull Bread 0.5 0.515 0.515 2 $16.50 $0.01 Bread 5%
11 Serve Customer 0.6 0.6 $16.50 $0.00 Hand 2%
END 6.8 4.8 9.1 9.2 0.0 4.0 0.0 33.8 $0.16
1 33.8 6.75 22 NVA-E 4.83
Soup Seconds 20.0% Seconds 65.8% Seconds 14% Seconds
Process Value Measurement and Analysis
Total Lead
Time
Value Add Work TotalProcess Waste
DesignforX
Source: NLPA Supply Executive Leadership Course, SPSM4, Competency 3

8. Defects Overproduction Waiting Neglect of HumanCapital
CostofSuppliers Shipping Defects CostofShrink fromExpiration CostofWaiting forLate Shipments CostofTurnover
CostofProductionDefects CostofShrink fromTheft CostofWaiting forChangeovers CostofSeparation
CostofShipping Defects to Customers CostofShrink fromDamage CostofWaiting due to Rework CostofRetraining
CostofCarrying Over-Production CostofLack ofLeverage ofTalent
CostofNegative CashFlow CostofLostOpportunitity
Transportation InventoryinExcess Motion Excess Processing
CostofUnnecessaryTransportation CostofShrink fromExpiration CostofMotionofPeople CostofExcessive Administration
CostofPollution CostofShrink fromTheft CostofMotionofMachines CostofExcessive ProductTouches
CostofWearand Tear CostofShrink fromDamage CostofExcessive CustomerTouches
CostofCarrying Inventory
CostofNegative CashFlow
Table 4, Cost Reduction and Process Improvement Opportunities from Waste Reduction
Source: NLPA Supply Executive Leadership Course, SPSM4, Competency 2

9. Key Considerations for Leveraging Total Cost to Serve:
Collecting the data on the Planned and Unplanned Categories can be challenging. The following are some
tips on how to overcome some of these obstacles:
1. Agree on the definition of the categories you are collecting data on (Operational Definitions)
2. Tool 12, Value Analysis for Product Assembly and Service Process, is a great framework for collecting data on
Unplanned Categories or the Hidden Factory
3. If preparing a Total Cost to Serve Analysis at the Customer Level as apposed to the Supply Chain Type,
you can:
a) Simplify the process by leveraging the 80/20 and 4/50 Rules
b) The 20% of Customers who drive 80% of your sales or the 4% of the Customers that drive 50% of your sales

10. Step
Process X's-(high
level)
Value
Add NVA-E Transport Motion
Over
Production
Over
Processing Waiting
Step
Totals
Labor
Rate
per hr.
Labor
Cost Inputs X's %
1 Receive Order 3.25 3.3 $16.50 $0.015 Listening 10%
2 Get into Position 3.9 3.9 8 $16.50 $0.04 Person 23%
3 Open Soup Pot 0.41 0.41 0.8 $16.50 $0.00 Soup Pot 2%
4 Pull Soup Cup 0.3 0.35 0.35 1.0 $16.50 $0.0046 Soup Cup 3%
5 Fill Soup Cup 3.9 1.22 1.22 3 9.3 $16.50 $0.0428 Soup Cup, 8oz Ladle 28%
6 Close Soup Pot 0.26 0.26 0.5 $16.50 $0.00 Soup Pot 2%
7 Pull Lid 0.3 0.27 0.27 0.8 $16.50 $0.00 Soup Pot 2%
8 Cover Soup 1.75 0.35 0.4 1 3.5 $16.50 $0.02 Lids, Lid Holder 10%
9 Label Cover 1.58 1.2 1.84 5 $16.50 $0.02 Marker 14%
10 Pull Bread 0.5 0.515 0.515 2 $16.50 $0.01 Bread 5%
11 Serve Customer 0.6 0.6 $16.50 $0.00 Hand 2%
END 6.8 4.8 9.1 9.2 0.0 4.0 0.0 33.8 $0.16
1 33.8 6.75 22 NVA-E 4.83
Soup Seconds 20.0% Seconds 65.8% Seconds 14% Seconds
Process Value Measurement and Analysis
Total Lead
Time
Value Add Work Total Process Waste
Tool 12, Value Analysis for Product Assembly and Service Process
Source: NLPA Supply Executive Leadership Course, SPSM4, Competency 2

11. Products: Making the case for Cost Reduction
• Quality Function Deployment (QFD)
• Design for X (DfX)
• Value Engineering

12. Design for X for Cost Reduction
Design for X includes:
Design for Ease of Use
Design for Ease of Repair, e.g. reduction in the number of operations
Design for Shipping
Design for Picking and Packing
Design for Ease of Manufacture and Assembly
Design for Reliability
Design for Ease of Sourcing

13. Quality Function Deployment (QFD) for Cost Reduction
Definition of QFD:
Quality Function Deployment (QFD) also known as House of Quality is:
1. A methodology to translate Prioritized Customer Requirements (the “What’s”) into
Prioritized Design, and Production Parameters (the “How’s”)
2. QFD aides in the organization and documentation of product and service design
thought processes to ensure no critical elements are left out.
3. Many top companies like GE and IBM use QFD

14. Tool 11, House of Quality Matrix
Source: NLPA Supply Executive Leadership Course, SPSM4, Competency 2

15. QFD Process:
Step 1, Gather Customer Requirements from VOC and plug into the QFD Matrix (What)
Step 2, Rate importance to the Customer (1=Low & 5=High) (What)
Step 3, Rate how well your company meets its customer requirements (What)
Step 4, Rate your competitors on how well they meet their customer requirements (What)
Step 5, List Design Criteria that will help meet your customer requirements (How)
Step 6, Rate how well the design criteria meets customer requirements (1= Low & 9=High) (How)
Step 7, Determine the correlation of design criteria to customer requirements (Correlation)
Step 8, Compare your company to competitors relative to design criteria
Step 9, Set Targets for Improvement (Potential Cost Reduction)
Step 10, Calculate the Absolute Importance for each Design Criteria (Potential Cost Reduction)
Note: VOC = Voice of the Customer. This can be captured by interviews, surveys, focus groups and so on.
Poor Product Designs = Excessive Procurement Expenditure

16. Product Portfolio Management for Cost Reduction
Definition of Product Portfolio Management:
Product Portfolio Management as defined by the PDMA (Product Development and
Management Association):
• A business process by which a business unit decides on the mix of active products, staffing, and dollar
budget allocated to each project currently being undertaken.
• A decision-making process where a business’ list of active products is continually reviewed and revised
• Scope limited to new product development projects.
• Products = goods + services.
Source of 1 & 2: Product Innovation Educators, https://productinnovationeducators.com
The core purpose of Product Portfolio Management is:
 working on and launching the right products and services
 effectively managing this process.

17. Strategic Fit
Product
Attractiveness
Market
Attractiveness
Leverages Core
Competencies
Reward vs Risk
Low Cost to
Develop
Intellectual
Property Potential
Decision
Product J 5 5 5 4 5 5 5 97 Proceed
Product D 4 5 5 5 4 5 5 94 Proceed
Product K 5 5 5 4 5 4 5 94 Proceed
Product A 5 5 4 5 5 5 4 94 Proceed
Product M 5 5 5 4 5 4 4 91 Proceed
Product I 5 4 3 5 5 5 4 89 Hold
Product F 5 4 4 4 5 4 4 86 Hold
Product N 5 4 4 3 4 5 5 86 Hold
Product G 4 5 3 5 3 5 5 86 Hold
Product C 4 5 5 4 4 4 3 83 Hold
Product B 2 3 4 2 5 5 5 74 Kill
Product L 3 4 4 3 2 5 5 74 Kill
Product H 2 2 3 3 2 5 5 63 Kill
Product E 3 3 2 3 4 1 2 51 Kill
Score Ranking Decision
90 to 100 A Proceed
80 to 89 B Hold
<80 F Kill
Strategic Buckets (Rating 1 = Low 5 = High)
New
Product Score
Tool 13, Product Portfolio Management Matrix
Source: NLPA Supply Executive Leadership Course, SPSM4, Competency 2

18. Process: Making the case for Cost Reduction
Value Stream Mapping for Cost Reduction

19. Performance Management
Strategies

21. Capture Strategic Supply Chain Metrics (SCOR Model)
The Measure of the degree of overall health of organizational supply chain.
Another type of metrics is Diagnostic Metrics, which shed light on areas for improvement.
How does
Procurement
impact these
Metrics?
Attributes of Performance Level-1 Strategic Metric
Responsiveness (RS.1.1) Order Fulfillment Cycle Time
Reliability (RL.1.1) Perfect Order Fulfillment
(AG.1.1) Upside Supply Chain Flexibility
(AG.1.2) Upside Supply Chain Adaptability
(AG.1.3) Downside Supply Chain Adaptability
(AG.1.4) Overall Value At Risk
Cost (CO.1.001) Total Cost to Serve
(AM.1.1) Cash-to-Cash Cycle Time
(AM.1.2) Return on Supply Chain Fixed Assets
(AM.1.3) Return on Working Capital
Operational Definitions
The speed at which tasks are performed
The ability to perform tasks as required
The ability to respond to external influences
The cost of operating the process
Agility
Asset Management Efficiency
SCOR Level 1 Metrics
The ability to efficiently utilize assets.

22. Cost reduction at the Souring Level (SCOR Model)
S1 Source Stocked Product S2 Source Make-to-Order Product S3 Source Engineer-to-Order Product
S1.1: Schedule Product Deliveries S2.1: Schedule Product Deliveries S3.1: Identify Sources of Supply
S1.2: Receive Product S2.2: Receive Product S3.2: Select Final Supplier(s) and Negotiate
S1.3: Verify Product S2.3: Verify Product S3.3: Schedule Product Deliveries
S1.4: Transfer Product S2.4: Transfer Product S3.4: Receive Product
S1.5: Authorize Supplier Payment S2.5: Authorize Supplier Payment S3.5: Verify Product
S3.6: Transfer Product
S3.7: Authorize Supplier Payment
SOURCE

23. EXECUTIVE OVERVIEW June 2019
12-MONTH SALES HISTORY
XYZ, Inc
0
500
1,000
1,500
2,000
2,500
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
12 Months
Rank $M %
Make to Stock (M1) 1 18.3 57%
Make to Order (M2) 2 10.1 32%
Engineer to Order (M3) 3 3.6 11%
32.01
SUPPLY CHAINS, BY PROFIT CONTRIBUTION
XYZ vs COMPETITORS
Competitors
(million $) XYZ, Inc Landow World Inc Keller Radon
Sales 384 299 136 246 122
Net Profits 9 38 11 18 8
EBITDA /Sales 12% 22% 8% 29% 24%
Current Stock Price 23 18 33 45 53
Earnings Per Share .95 .50 .24 1.50 1.02
Cash Flow 185 86 -5 72 36
Market Share 40% 32% 11% 6% 11%
Revenue / Employee (K $) 118,154 156,001 123,571 88,293 109,127
Savings / Buyer (K $) 1,200,000 90000 1,400,000 300,000 650,000
Upside Supply Chain Flex. 18 7 11 24 19
Cash to Cash Cycle Time 38 29 65 18 25
Perfect Order Fullfillment Rate 92% 99% 93% 88% 96%
Order Fullfillment Cycle Time 18 11 7 22 38
Total Cost to Serve 2500 1800 3900 2350 2956
GOGS / Sales 42% 45% 55% 38% 35%
R&D / Sales 12% 18% 12% 21% 24%
Debt / Equity 1.5 2.2 3.8 1.7 2.1
Competitor data is the most recent available. All data reflects running 12-month averages.
PRODUCT DEVELOPMENT
This Last
Year Year
New Products / Sales 17% 12%
Avg Break-Even Months 8 11
Products in Development 25 22
Product Enhancements 127 109
Dev Expense ($M) 238 224
Grow th % 6% 5%
Dev Capital ($M) 122 98
Grow th % 24% 10%
Balanced Scorecard This Last
Year Year
New Custom ers 385 204
Sales ($1000) 1,245 987
% Total Sales 5% 2%
Lost Custom ers 475 627
"Very Satisfied" 34% 18%
"Satisfied" 42% 29%
"Dissatisfied" 12% 22%
"Very Dissatisfied" 5% 12%
Returns / Sales 5% 8%
Average Price Discount 11% 16%
Annual Purchase Grow th 3% -1%
% Cust Buying More 27% 8%
Cost of New Custom er 842 936
CUSTOMER SATISFACTION
Balanced Scorecard This Last
Year Year
New Hires 5 7
Separations 8 6
Em ployee FTEs 12 15
Contractor FTEs 13 12
Unsched Absenses, FTE 28 21
Overtim e Hours 350 277
EMPLOYEES ( P ro c ure m e nt D e pt .)
Balanced Scorecard This Past
(million $) Year Year
Source (Inputs, MROs, etc) 11 16.5
Make 3 4
Deliver 4 3
Enable 2 3
Hidden Factory 10 8
Total Cost Reductions 30 35
Contributions in M illion $
PROCESS (P ro curement D ept. C o st R eductio n)
Jul 18 - Sep 18 Oct 18 - Dec 18 Jan 19 - Mar 19 Apr 19 - Jun 19
(million $) Actual Plan % Actual Plan % Actual Plan % Actual Plan %
Sales 96 95 1 88 95 -7 92 95 -3 98 95 3
Cost of Goods Sold 43 45 -3 41 46 -9 44 45 -1 46 46 1
Gross Margin 53 50 5 47 49 -6 48 50 -5 52 49 5
Marketing 21 21 -1 19 20 3 22 21 -6 22 21 -3
G&A 12 12 -1 11 13 14 12 12 0 13 10 -22
Development 7 7 -1 6 7 7 6 7 17 7 7 -3
EBITDA 14 11 19 11 10 2 9 11 -24 12 13 -5
Net Profit 9 6 39 7 8 -11 6 7 -24 10 8 22
FINANCIALS (P&L vs PLAN)….........Balanced Scorecard
Orders Billings Backlog
Source:NLPASupplyExecutiveLeadershipCourse,SPSM4,Competency7
Cause & Effect
Relationships:
Leverage Executive
Dashboards for
Cost Reduction

24. Week of
Savings per
Buyer
Savings per
Team
Required
PO Takt
Time (hrs) Separations Tardiness Callouts DPMO
Sigma
Level
CP
Index
%
Compliant
Net
Promoter
Score
Lead Time (to
receive
critical inputs,
days) Sales $M
Net Margin
$M
6/12019 $20,153 $503,825 22.93 1 6 2 53,571 3.11 1.04 94.64% 25 5 7.38 0.66
6/82019 $17,442 $436,050 22.93 1 1 1 12,500 3.74 1.25 98.75% 38 3 8.2 0.75
6/152019 $22,457 $561,425 22.93 1 2 0 27,500 3.42 1.09 97.25% 32 4 6.9 0.56
22-Jun-19 $28,129 $703,225 22.93 0 0 0 5,000 4.08 1.4 99.50% 44 3 7.12 0.81
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Financial
MetricsEmployee KSAs Metrics
Internal
Customer
Experience
Process Quality
Capability Metrics
XYZ, Inc * June 2019
Procurement Department
Dashboard
53,571
12,500
27,500
5,000
0 10,000 20,000 30,000 40,000 50,000 60,000
1
2
3
4
Defects per Million Transactions(Inbounddeliveries from suppliers with issues)
AuditNumber
DPMO (Defects per Million Transactions): ProcurementDepartmentXYZ,Inc
3.11
3.74
3.42
4.08
0.00
1.00
2.00
3.00
4.00
5.00
1 2 3 4
Sigma Level: Sourcing Process.
1.04
1.25
1.09
1.4
0.00
0.50
1.00
1.50
1 2 3 4
CP (Process Capability
Index): Sourcing Process
5
3
4
3
0 2 4 6
1
2
3
4
Avg. Days Lead Time
( for Critical Inputs)
0
5,000
10,000
15,000
20,000
25,000
30,000
1 2 3 4
Buyer Savings
$0
$200,000
$400,000
$600,000
$800,000
1 2 3 4
Procurement Team Savings
0.66
0.75
0.56
0.81
0.00
0.20
0.40
0.60
0.80
1.00
1 2 3 4
Net Margin $M
94.64%
98.75%
97.25%
99.50%
92.00%
94.00%
96.00%
98.00%
100.00%
1 2 3 4
% Compliant
25
38
32
44
0
10
20
30
40
50
1 2 3 4
Internal Net Promoter Score
Source:NLPASupplyExecutiveLeadershipCourse,SPSM4,Competency7
Cause & Effect
Relationships:
Leverage Operational
Dashboards for
Cost Reduction

25. NLPA PASS Program
for Cost Reduction
The PASS Program will give you a roadmap for greater success.
After each of your team members answers 63 multiple-choice questions online, you
will get three valuable reports:
 A color-coded assessment report showing you your department’s and each of
your team members’ strengths and areas for improvement in 9 competencies
 A benchmarking report to compare your department’s skill levels and savings
with industry statistics
 A written performance improvement plan customized to your needs and
limitations.
Purchasing’s Assessment of Skills for Success (PASS) Program