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1、Sheila Dubin,Value Managed Relationships,December 1998,Author:,2,After completing this module, you will be able to:,Understand VMR concept and application Articulate types of cost savings opportunities created by VMRs Use the Bain framework to conduct a VMR Refer to real examples of Bains VMR proces
2、s and success,Value Managed Relationships Objectives,3,VMR Concept VMR Key Success Factors VMR Sources Of Value Bain VMR Process Example Key Takeaways,Agenda,4,A Value Managed Relationship (VMR) is a full partnership between a customer and a supplier. Its goal is to maximize quality and minimize tot
3、al system costs of doing business through collaborative sharing of information and resources.,A VMR creates a win/win relationship.,VMR Definition,5,“Partnership”,True VMR,Procurement Strategies,Value Managed Relationship,Sole Source,Vertical Integration,Competitive Bid,Short-term Contract / Spot,Lo
4、ng-term Contract,A VMR is one procurement strategy to maximize cost savings and strategic value.,What is a VMR?,6,A Value Managed Relationship can exceed the value potential of both vertical integration and traditionally negotiated “arms length“ transactions: a consolidation of purchases to one or f
5、ew suppliers who are capable of maintaining long term competitive economics, high quality and efficient delivery participants must share single goal of achieving lowest industry systems cost savings should be shared to provide mutual ongoing incentives to eliminate redundancies,A VMR, when appropria
6、te, exceeds the value of all other types of relationships.,How Does a VMR Work?,7,Traditional “Arms Length“ Approach,Vertical Integration,VMR,VMRs can exceed the value of both traditional contracts as well as vertical integration.,Strategic Purchasing Options,8,High Potential,High,Low,High,Low,Purch
7、asing volume (relative to total supplier sales),Value-added / engineered level,Product redesign Material substitution,Product redesign Material substitution Volume discount System cost improvement,Moderate Potential,Volume discount Some system cost,No / Little opportunity (need to cluster),VMRs are
8、most appropriate where high volume and significant value added occurs.,Medium/low potential,Where Are VMRs Appropriate?,9,Large dollar purchase High level of value-added cost in product Fragmentation across many divisions and suppliers Client represents significant part of industry output Industry c
9、ompetitive intensity high: capacity utilization dropping consolidation in progress many new plants looking for volume historical industry price umbrellas,VMRs are most effective in large dollar, high value added products.,In Which Categories Are VMRs Most Effective?,10,Consolidate volume in long-ter
10、m partnership,Increased pace of innovation leads to strategic benefits for both,Ensures continued supply for buyer and capacity utilization for supplier,Commitment and scale justifies joint investment in cost savings and R&D/technology,Joint efforts lead to system-wide benefits for both,Added value
11、leads to more reasons to collaborate,A successful VMR will continue to create value as the relationship progresses.,Value Cycle,11,VMRs create value for the buyer.,Higher quality and fewer rejects Superior service Partner in joint system cost reduction Innovation Technological expertise package perf
12、ormance improvements spec consolidation product redesign and materials substitution Pricing commensurate with larger, longer volume commitments Commitment to continuous improvement of the partnership,Value Of VMRsBuyer,12,VMRs create value for suppliers.,Larger volumes in fewer items longer run leng
13、ths and fewer set-ups higher capacity utilization learning curve benefits Stable long term demand Sharing in buyers strong commitment to future growth Partner in joint system cost reduction Resources and stability to invest in technology Commitment to continuous improvement of the partnership,Value
14、Of VMRsSupplier,13,VMRs have averaged 15% to 20% cost savings.,Average Range,Bain Experience in VMRs,14,Although the value managed relationship can be sophisticated and complex, the results are quantifiable and simple.,100% of volume with one supplier for three years Up front price reduction of 7% G
15、uaranteed 9.8% recurrent savings within three years Cost-based indexed pricing over time 50/50 savings sharing Penalties and inspections built-in Etc.,VMR Sample Agreement,15,VMR Concept VMR Key Success Factors VMR Sources Of Value Bain VMR Process Example Key Takeaways,Agenda,16,Over one half of ex
16、isting partnerships do not meet expectations.,This reality increases the need to understand and focus on the key success factors,Partnerships Expectations,17,Strategy, organization and process must be in place in order to ensure VMR success.,Clarity of and agreement on strategy and goals,Strategy,Appropriate level of involvement in and across organizations,Organization,Detailed and structured process for identifying and implementing opp