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1、SheilaDubin ValueManagedRelationships December1998 Author Aftercompletingthismodule youwillbeableto UnderstandVMRconceptandapplicationArticulatetypesofcostsavingsopportunitiescreatedbyVMRsUsetheBainframeworktoconductaVMRRefertorealexamplesofBain sVMRprocessandsuccess ValueManagedRelationshipsObjecti
2、ves VMRConceptVMRKeySuccessFactorsVMRSourcesOfValueBainVMRProcessExampleKeyTakeaways Agenda AValueManagedRelationship VMR isafullpartnershipbetweenacustomerandasupplier Itsgoalistomaximizequalityandminimizetotalsystemcostsofdoingbusinessthroughcollaborativesharingofinformationandresources AVMRcreate
3、sawin winrelationship VMRDefinition Partnership TrueVMR ProcurementStrategies ValueManagedRelationship SoleSource VerticalIntegration CompetitiveBid Short termContract Spot Long termContract AVMRisoneprocurementstrategytomaximizecostsavingsandstrategicvalue WhatisaVMR AValueManagedRelationshipcanexc
4、eedthevaluepotentialofbothverticalintegrationandtraditionallynegotiated arm slength transactions aconsolidationofpurchasestooneorfewsupplierswhoarecapableofmaintaininglongtermcompetitiveeconomics highqualityandefficientdeliveryparticipantsmustsharesinglegoalofachievinglowestindustrysystemscostsaving
5、sshouldbesharedtoprovidemutualongoingincentivestoeliminateredundancies AVMR whenappropriate exceedsthevalueofallothertypesofrelationships HowDoesaVMRWork Traditional ArmsLength Approach VerticalIntegration VMR VMRscanexceedthevalueofbothtraditionalcontractsaswellasverticalintegration StrategicPurcha
6、singOptions HighPotential High Low High Low Purchasingvolume relativetototalsuppliersales Value added engineeredlevel ProductredesignMaterialsubstitution ProductredesignMaterialsubstitutionVolumediscountSystemcostimprovement ModeratePotential VolumediscountSomesystemcost No Littleopportunity needtoc
7、luster VMRsaremostappropriatewherehighvolumeandsignificantvalueaddedoccurs Medium lowpotential WhereAreVMRsAppropriate LargedollarpurchaseHighlevelofvalue addedcostinproductFragmentationacrossmanydivisionsandsuppliersClientrepresentssignificantpartofindustryoutputIndustrycompetitiveintensityhigh cap
8、acityutilizationdroppingconsolidationinprogressmanynewplantslookingforvolumehistoricalindustrypriceumbrellas VMRsaremosteffectiveinlargedollar highvalueaddedproducts InWhichCategoriesAreVMRsMostEffective Consolidatevolumeinlong termpartnership Increasedpaceofinnovationleadstostrategicbenefitsforboth
9、 Ensurescontinuedsupplyforbuyerandcapacityutilizationforsupplier CommitmentandscalejustifiesjointinvestmentincostsavingsandR D technology Jointeffortsleadtosystem widebenefitsforboth Addedvalueleadstomorereasonstocollaborate AsuccessfulVMRwillcontinuetocreatevalueastherelationshipprogresses ValueCyc
10、le VMRscreatevalueforthebuyer HigherqualityandfewerrejectsSuperiorservicePartnerinjointsystemcostreductionInnovationTechnologicalexpertisepackageperformanceimprovementsspecconsolidationproductredesignandmaterialssubstitutionPricingcommensuratewithlarger longervolumecommitmentsCommitmenttocontinuousi
11、mprovementofthepartnership ValueOfVMRs Buyer VMRscreatevalueforsuppliers Largervolumesinfeweritemslongerrunlengthsandfewerset upshighercapacityutilizationlearningcurvebenefitsStablelongtermdemandSharinginbuyer sstrongcommitmenttofuturegrowthPartnerinjointsystemcostreductionResourcesandstabilitytoinv
12、estintechnologyCommitmenttocontinuousimprovementofthepartnership ValueOfVMRs Supplier VMRshaveaveraged15 to20 costsavings AverageRange BainExperienceinVMRs Althoughthevaluemanagedrelationshipcanbesophisticatedandcomplex theresultsarequantifiableandsimple 100 ofvolumewithonesupplierforthreeyearsUpfro
13、ntpricereductionof7 Guaranteed9 8 recurrentsavingswithinthreeyearsCost basedindexedpricingovertime50 50savingssharingPenaltiesandinspectionsbuilt inEtc VMRSampleAgreement VMRConceptVMRKeySuccessFactorsVMRSourcesOfValueBainVMRProcessExampleKeyTakeaways Agenda Overonehalfofexistingpartnershipsdonotmee
14、texpectations Thisrealityincreasestheneedtounderstandandfocusonthekeysuccessfactors PartnershipsExpectations Strategy organizationandprocessmustbeinplaceinordertoensureVMRsuccess Clarityofandagreementonstrategyandgoals Strategy Appropriatelevelofinvolvementinandacrossorganizations Organization Detai
15、ledandstructuredprocessforidentifyingandimplementingopportunities Process KeySuccessFactors Longtermrelationshipsfocusedontotalvaluearecriticalstrategicissuesthatmustbeclearlyarticulated VMRspursuedonlywhereappropriateTruesupplierpartnershipslong termrelationshipswithoneorfewsuppliersrelationshipsat
16、allorganizationallevelsextensivetwo wayinformationsharingsharingofallsavingswillingtoaddressinherentrisksFocusontotalvalue chain notinputpricesuppliersselectedbasedonlong termtotalvalueopportunitiesidentifiedandcapturedacrossentiresupplychain KeySuccessFactors Strategy Involvementandcooperationacrosstheorganizationiscriticaltosuccess Seniormanagementdirectinvolvementandongoinginterest supportCross functionalinvolvementinscheduling logistics designanddevelopmentImplementationdrivenat grassroots l