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1、Sheila DubinValue Managed RelationshipsDecember 1998Author:1Value Managed RelationshipsAfter completing this module, you will be able to: Understand VMR concept and applicationArticulate types of cost savings opportunities created by VMRsUse the Bain framework to conduct a VMRRefer to real examples
2、of Bains VMR process and successValue Managed Relationships Objectives2Value Managed Relationships VMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgendaa.tr3Value Managed Relationships A Value Managed Relationship (VMR) is a full partnership between a custo
3、mer and a supplier.Its goal is to maximize quality and minimize total system costs of doing business through collaborative sharing of information and resources.A VMR creates a win/win relationship. VMR Definition4Value Managed Relationships“Partnership”True VMR Procurement StrategiesValue Managed Re
4、lationshipSole SourceVertical IntegrationCompetitive BidShort-term Contract / SpotLong-term ContractA VMR is one procurement strategy to maximize cost savings and strategic value.What is a VMR?5Value Managed Relationships A Value Managed Relationship can exceed the value potential of both vertical i
5、ntegration and traditionally negotiated arms length transactions:a consolidation of purchases to one or few suppliers who are capable of maintaining long term competitive economics, high quality and efficient deliveryparticipants must share single goal of achieving lowest industry systems costsaving
6、s should be shared to provide mutual ongoing incentives to eliminate redundanciesA VMR, when appropriate, exceeds the value of all other types of relationships.How Does a VMR Work?6Value Managed RelationshipsFragmented supplier base, sporadic communicationSingle or small number of suppliers, frequen
7、t communicationIn-house supply, communication frequentTraditional Arms Length ApproachVertical IntegrationInvestments based upon manufacturers needsPotential for customized investment in facilities/equipmentMay require investment in weak strategic businessAdversarial bid negotiations to obtain lowes
8、t unit priceLong-term commitment focused upon lowest total systems cost using value chain perspectivesFocus driven by internal incentives/ transfer pricesSeparate product designJoint product design and cross functional participationJoint product design often at oddsVMRVMRs can exceed the value of bo
9、th traditional contracts as well as vertical integration.Strategic Purchasing Optionsa.tr7Value Managed Relationships High PotentialHighLowHighLowPurchasing volume(relative to total supplier sales)Value-added / engineered levelProduct redesignMaterial substitutionProduct redesignMaterial substitutio
10、nVolume discountSystem cost improvementModerate PotentialVolume discountSome system costNo / Little opportunity (need to cluster)VMRs are most appropriate where high volume and significant value added occurs. Medium/low potential Where Are VMRs Appropriate?8Value Managed RelationshipsLarge dollar pu
11、rchaseHigh level of value-added cost in productFragmentation across many divisions and suppliersClient represents significant part of industry outputIndustry competitive intensity high:capacity utilization droppingconsolidation in progressmany new plants looking for volumehistorical industry price u
12、mbrellasVMRs are most effective in large dollar, high value added products.In Which Categories Are VMRs Most Effective?9Value Managed RelationshipsConsolidate volume in long-term partnershipIncreased pace of innovation leads to strategic benefits for bothEnsures continued supply for buyer and capaci
13、ty utilization for supplierCommitment and scale justifies joint investment in cost savings and R&D/technologyJoint efforts lead to system-wide benefits for bothAdded value leads to more reasons to collaborateA successful VMR will continue to create value as the relationship progresses.Value Cycle10V
14、alue Managed RelationshipsVMRs create value for the buyer. Higher quality and fewer rejectsSuperior servicePartner in joint system cost reductionInnovationTechnological expertisepackage performance improvementsspec consolidationproduct redesign and materials substitutionPricing commensurate with lar
15、ger, longer volume commitmentsCommitment to continuous improvement of the partnershipValue Of VMRsBuyera.tr11Value Managed RelationshipsVMRs create value for suppliers. Larger volumes in fewer itemslonger run lengths and fewer set-upshigher capacity utilizationlearning curve benefitsStable long term
16、 demandSharing in buyers strong commitment to future growthPartner in joint system cost reductionResources and stability to invest in technologyCommitment to continuous improvement of the partnershipValue Of VMRsSupplier12Value Managed RelationshipsVMRs have averaged 15% to 20% cost savings.Average
17、RangeBain Experience in VMRs13Value Managed RelationshipsAlthough the value managed relationship can be sophisticated and complex, the results are quantifiable and simple.100% of volume with one supplier for three yearsUp front price reduction of 7%Guaranteed 9.8% recurrent savings within three year
18、sCost-based indexed pricing over time50/50 savings sharingPenalties and inspections built-inEtc.VMR Sample Agreementa.tr14Value Managed Relationships VMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgendaa.tr15Value Managed RelationshipsOver one half of exis
19、ting partnerships do not meet expectations.This reality increases the need to understand and focus on the key success factorsPartnerships Expectations16Value Managed RelationshipsStrategy, organization and process must be in place in order to ensure VMR success.Clarity of and agreement on strategy a
20、nd goalsStrategyAppropriate level of involvement in and across organizationsOrganizationDetailed and structured process for identifying and implementing opportunitiesProcessKey Success Factors17Value Managed RelationshipsLong term relationships focused on total value are critical strategic issues th
21、at must be clearly articulated.VMRs pursued only where appropriateTrue supplier partnershipslong-term relationships with one or few suppliersrelationships at all organizational levelsextensive two-way information sharingsharing of all savingswilling to address inherent risksFocus on total value-chai
22、n, not input pricesuppliers selected based on long-term total valueopportunities identified and captured across entire supply chainKey Success FactorsStrategy18Value Managed RelationshipsInvolvement and cooperation across the organization is critical to success.Senior management direct involvement a
23、nd ongoing interest/supportCross-functional involvement in scheduling, logistics, design and developmentImplementation driven at grass roots levelClear process championsFormalized structure and process to perpetuate partnershipKey Success FactorsOrganization19Value Managed RelationshipsA detailed pr
24、ocess must be in place to maximize value and ensure ongoing opportunity identification.Up front identification of opportunities and unique value each partner offersDocumented existence of significant untapped systems cost valueRigorous and fact-based supplier selectionExtensive consensus buildingSys
25、tems and structures to perpetuate processKey Success FactorsProcessa.tr20Value Managed RelationshipsScope of partnership limitednot win/winFocus on price instead of total valuesupplier selection based on pricefailure to consider total system as source of savingsChosen strategy inappropriate for purc
26、hase categoryAn inappropriate strategy can prohibit a win/win relationship.Reasons for Partial SuccessStrategya.tr21Value Managed RelationshipsLimited senior management participationLittle cross-functional involvementOver-centralized decision making: Not participative/inclusiveAd hoc structure set u
27、p to implement strategyPartial success can be caused by senior or line organizational inadequacies.Reasons for Partial SuccessOrganizationa.tr22Value Managed RelationshipsLack of internal and external consensus buildingLack of relentless pursuitSupplier selection not rigorous and fact-basedTechnical
28、 opportunities not identified up frontLack of systems and structures to perpetuate the processAn incomplete process can also cause limited success.Reasons for Partial SuccessProcessa.tr23Value Managed Relationships To achieve successful VMRs, there are several areas of potential obstacles to watch o
29、ut for.Benefits are vague and unqualifiedno “full potential” economics analysis has been developed for both partiesProcess ChallengesAssumptions are made by suppliers that VMRs are a one-time trickCommunication ChallengesWatchoutsConcerns about sharing expense and product informationSufficient commu
30、nication of the benefits of change throughout both organizationsThere is a lack of understanding and commitment to changing the way business is doneBenefits of the VMR are split in a lop-sided mannerSKU proliferationNo ongoing value realization agenda has been created and/or no VMR champions are emp
31、owered to actOrganizational barriers (e.g. multi-divisional companies)Watchouts24Value Managed Relationships VMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda25Value Managed Relationships Improved quality due to reduced variabilityImproved communication
32、sLonger commitments allow for longer run lengthsPurchasing economiesA strong VMR can capture the value inherent in vertical integration while allowing the client to focus both capital and management resources on its primary business.Example Sources of Value:Primary Sources of ValueVolume/ScaleEconom
33、iesValue Engineering and Quality Improvement System CostReductionTechnology and capability sharing to create lowest cost, highest value productJoint determination of potential for:material substitutionreduction of material contentstandardization of materialsJoint identification of redundant/duplicat
34、e processes, e.g.quality controlorder processingtransportationengineeringmanagement functionsimproved inventory controlCross company logisticssharing of transportation and distribution operations (e.g., leveraged backhaul opportunities, shared delivery runs)Estimate Percent of Total Value Created:25
35、%50%25%Sources of Value (1 of 2)26Value Managed RelationshipsValue engineering and systems cost reduction are most difficult to implement and require the most senior involvment.Source of ValueMethodologyDifficulty of ImplementationSenior Management InvolvementAn open dialogue regarding product desig
36、n begins to optimize design/cost trade-offsValue engineering and quality improvementBuyer and supplier jointly examine current methods of interaction and begin to eliminate redundanciesSystems cost reductionConsolidation of suppliers allows the buyer to negotiate for share of incremental profitVolum
37、e/scale economicsSources of Value (2 of 2)27Value Managed RelationshipsDisguised exampleIncrease of 3.2 times6% Profit ImprovementRelevant Plant Capacity UtilizationIncremental Margin ImpactIncreasing a suppliers utilization by 22% had a 6% profit impact.Volume/Scale EconomiesExample28Value Managed
38、RelationshipsNew DesignsIndexed QualityIndexed CostValue engineering identified three new product options that increased quality and reduced cost.*Protypes developed jointly with supplierDisguised exampleValue EngineeringExample29Value Managed Relationships Before VMR(5 Quality Control FTEs)After VM
39、R(3 Quality Control FTEs)SupplierCustomerJoint QualityControlCustomerDirect to packaging operations= QC inspection personnelIn this example of systems cost VMR, the supplier and Bain client eliminated redundancy and saved 40% of quality control costs.To packaging operationsOngoing Feedback to Vendor
40、Systems Costs Example30Value Managed RelationshipsOverall, this client achieved a 19% cost reduction through the VMR example shown.Summary of Cost SavingsExample31Value Managed Relationships Volume/price savings and some level of value engineering/ quality benefits are realized very early in the rel
41、ationshipAdditional value engineering savings and system cost reductions are more likely to come laterBain experience has found that the value from VMR is developed over several years.Years into VMRValue engineering and quality improvementSystem cost reductionVolume/price effectTypical Timing32Value
42、 Managed Relationships VMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda33Value Managed RelationshipsIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction Opportu
43、nitiesImplement VMR OpportunitiesTrack VMR SavingsSelect products for VMR based on purchasing volume and value-addedAnalyze industry economics to develop savings hypothesesAnalyze suppliers to select best VMR candidatesEnsure senior management of client and supplier are fully committedConduct analys
44、is to prove hypotheses and quantify savings opportunitiesFormalize relationship and implement opportunitiesTrack progress of savings and relationshipsVMR Process34Value Managed RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management
45、CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process35Value Managed RelationshipsThis matrix will help you prioritize which opportunities are most appropriate for a VMR.No/Little Opportunity(need to cluster)HighLow LowHighPurchasing Volume(Re
46、lative to Total Supplier Sales)Value-Added/Engineered LevelProduct redesignMaterial substitutionVolume discountSystem cost improvementVolume discountSome system cost Product redesignMaterial substitutionModerate potentialHigh potentialMedium/low potentialPurchasing Category Priority36Value Managed R
47、elationshipsBecause the VMR process is lengthy and time consuming, qualitative issues must also be evaluated in selecting where to implement a VMR.Suppliers and client organizations must be willing towork closely togethercommit management time and effortprioritize success of VMRTop management of sup
48、plier and client must have authority to cover full scope of VMRBalance amount of cost savings with level of sensitivity associated with product categoryPurchasing Category Selection37Value Managed RelationshipsIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain To
49、p Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process38Value Managed RelationshipsUnderstanding the industry structure validates opportunities that were identified in the first VMR process step.Industry Cost Structure and DriversI
50、ndustry Competitive StructureIndustry Capacity UtilizationHow suitable is this market and its competitive dynamics for a VMR?How important is the client as a customer in this industry?What is the cost structure of the industry?ExampleQuestions:Who are the key players?What is the industry capacity ut
51、ilization?What drives this cost structure?How fragmented is the industry?What is the utilization of each player?What type of cost savings opportunities might exist?On what factors do key players compete?What drives utilization?Understand Industry Structure39Value Managed RelationshipsIdentify VMR Op
52、portunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process40Value Managed RelationshipsVMR partners must be able to perform in the relationship and be a willing
53、 partner.Potential for low cost positionStrong technology/qualityNew product development track recordAdequate financial resourcesLong Term WinnersCapability and Willingness to Develop a PartnershipImportant category for supplierClient important to supplierPartnerships with other suppliersScale to ha
54、ndle volumeParent company supportIdeal PartnersSupplier Prioritization41Value Managed RelationshipsInitial analysis of the supplier must be conducted to determine potential for being a long-term winner and capability/willingness to develop a partnership.Example Analyses:Size and market shareStrategy
55、ProfitabilityCash flowQuality philosophy and implementationTechnology applicationImportance of clients business to supplierInitial Supplier Evaluation42Value Managed Relationships To further determine whether a specific supplier is a good VMR candidate, evaluate the vendor on a variety of criteria.
56、Quality of ServiceSupplier CommitmentMagnitude of Cost Reduction PotentialLong-Term Leadership PotentialProduct/delivery/systemsGeographic coverageDedication/dependenceInterest in VMRSystems economicsFlexibility of approachCredibility of plan/resourcesTechnologyScaleFinancialSupplier Evaluation43Val
57、ue Managed RelationshipsPartnership Development ProcessIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process44Value Managed RelationshipsImp
58、lementationSet up partnership management structure and rolloutNegotiationsShare aggregate responsesSupplier Proposals AnalysisReceive responsesInitial Contact with SuppliersDescribe proposed relationshipSelection of supplier(s)Comparative analysisElicit suppliers attitudes on a partnership with the
59、clientTrain staff to manage process, expand to other areasIdentification of BDP and system cost reduction targetsFollow-up with plant tours, quality checks, etc.Hand over category strategy and volume expectationsThe optimal partnership development process is explicit and clearly articulated.Partners
60、hip Development Process45Value Managed Relationships Number of Suppliers:OligopolyGiant(s) and ManyFragmentedSole SourceGiant(s) and Few15-3015-302-52-51Supplier Concentration:80% to 6-8 suppliersRest with 10-20 suppliers80% to 1 or 2 suppliersRest with 15-30 suppliersEvenly among suppliers80% to 1
61、or 2 suppliersRest with 1-4 suppliers100% to 1 supplierLong term competitive bidsShort term competitive bidsVMRLong term competitive bidsShort term competitive bidsVMRLong term competitive bidsShort term competitive bidsVMRLong term competitive bidsShort term competitive bidsVMRLong term competitive
62、 bidsPotential Relationship Options:A range of supplier configuration options, should be evaluated.Supplier Configuration Alternatives46Value Managed RelationshipsPeopleIs senior management committed to making this work?Have all organizational, cultural, and skill changes been addressedAre the incen
63、tives appropriate to ensure employee commitment?Operational ExecutionWhat is the governance structure?How is progress monitored? How will roadblocks be resolved?Is there open sharing of required information?Can all the information systems changes be identified and specifiedHow will switch disruption
64、s be minimized?Partner SelectionWhat is the optimal number of suppliers?Do we really understand suppliers current and future cost position?Has the supplier screen included non-cost parameters?Has the supplier made a realistic commitment?Is the supplier committed to delivering on the agreement?ValueI
65、s this the right input to target for a VMR?industry track recordproportion of buyer cost structureDoes the benefit outweigh the risks?switching costsbuyer leverageWhere is the value?Stages 1, 2 and 3short vs. long-termIs the value realizable?potential hurdles and roadblocksEach of these issues shoul
66、d be considered in evaluating a VMR.Checklist for Successful Execution47Value Managed RelationshipsIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR Saving
67、sVMR Process48Value Managed RelationshipsA meaningful tracking mechanism must be put in place across multiple variables to ensure ongoing results.Savingsproduct costsystems costRelationship statusTimingof savingsmilestone achievementsIndustrychanges in industry dynamicsintroduction of new technology
68、, etc.Tracking49Value Managed Relationships VMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgendaa.tr50Value Managed RelationshipsClient is large conglomerate producing 15 major product linesCurrent relationship with suppliers is traditional and somewhat ad
69、versarial at timesAll data and vendors have been disguised, however this is an actual Bain client and caseProduct A is called widgets throughout the examplewidget SKUs are called red, blue and greenContext:VMR Example51Value Managed RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry C
70、ost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process52Value Managed RelationshipsUpon evaluation of ABCs product purchases, Product A is the most attractive VMR opportunity.EXAMPLEABC Pu
71、rchased ProductsABC Company Purchasing Category Priority53Value Managed RelationshipsProduct category A has the most supplier and client support.Product Executive CommitmentCorporate Willingness to Product ChangeRankingSupplier CommitmentSupplier CooperationProduct Category1Product A (Widgets)2Produ
72、ct DEXAMPLE3Product B4Product CPurchasing Category Selection54Value Managed RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVM
73、R Process55Value Managed RelationshipsMarket TrendsMarket Overview$1.5B custom widget market7% industry growth rateHighly fragmented marketlargest 15 vendors comprise 60%Suppliers tend towards materials specializationsecondary materials often outsourcedCustomer/Supplier RelationshipsIndustry-wide, c
74、lose retailer-supplier partnerships are not commonHowever, all suppliers surveyed have had some partnership experience examples include:volume driven price discountsjoint R&D/product designelimination of duplicate processesSupplier trendsconsolidationmovement to one-stop shopsprovision of additional
75、 servicesCustomer trends strong price focusshort-term contract commitmentsmovement to multi-material fixturesSupplier EconomicsVariable costs represent 66% of total supplier costsRaw materials costs represent 40% of total suppliers costsCustom suppliers achieve 5% EBIT margins on average, but signif
76、icant ranges existsSuppliers surveyed reinvest 5% of annual revenues Opportunity exists for operational improvementoperations are not highly automatednot fully leveraging materials purchasing across divisions or customersEXAMPLEWidget Industry Overview56Value Managed RelationshipsThe custom widget m
77、arket is highly fragmented with the top 15 suppliers comprising approximately 60% of the $1.5B total market.EXAMPLEU.S. Widget Market57Value Managed RelationshipsThe custom widget market is further fragmented by color.EXAMPLEU.S. Custom Widget Market by Color58Value Managed RelationshipsEXAMPLEIdent
78、ify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process59Value Managed Relationships1997 Annual Revenues:Business Strategy Focus:Primary Color:Cust
79、omer Concentration (Percent of Sales to Top Five Customers):Average Capacity Utilization:Experience with Client:Widget manufacturers differ significantly in terms of size and capabilities.DVolumeRed, blue60%60%Limited$60MBCustomizationBlueN/A80%No$80MAOne-stop shoppingBlue40%70%Yes$100MCOne-stop sho
80、ppingRed, blue33%75%No$75MELow cost widgetsRed42%50%Yes$50MEXAMPLESupplier Profiles60Value Managed Relationships Most players in the custom widget industry tend to specialize in red or blue, many often outsource the secondary color.EXAMPLESupplier Materials Focus61Value Managed Relationships EBITG&A
81、COGSSupplier Cost Structure(Average Custom Supplier)38%24%7%12%10%4%5%Rent & UtilitiesWhile manufacturers size and product focus impact their costs, preliminary estimates indicate that variable costs account for 67% of average widget suppliers costs, with materials comprising around 40% of total cos
82、t.Estimated variable cost approx. = 67% of cost totalEXAMPLESupplier Economics: Cost Structure Detail62Value Managed RelationshipsMost major fixture manufacturers grew from “mom-and-pop” operations, leaving significant room for operational improvement in areas such as automation and materials purcha
83、sing.Materials PurchasingMany manufacturers are not leveraging their volume in purchasing materials, either across customers or across internal divisionsA purchases its customers red separately, despite the fact that the vast majority of its purchases are for the same red productsBs manufacturing di
84、visions each purchase raw materials separatelyBlue Fixture ManufacturersRed Fixture ManufacturersManufacturing AutomationEXAMPLESupplier Operational Efficiency63Value Managed RelationshipsMost vendors surveyed reported at least some experience with partnership arrangements.Portion of Vendors Indicat
85、ing Experience in Some Partnership AspectsEXAMPLEPartnership Experience64Value Managed Relationships Client Needs ParametersSupplier RequirementsCapacityPotentially, the ability to supply all of clients red, blue widget needscurrent client volume of $80M per yearMaterialsPotentially, the ability to
86、manufacture all clients red, blue widgets QualityDemonstrated ability to meet all quality requirements at highest levelproduct qualityservice-levelslead timesExperienceIndustry-leading expertise in custom blue widget productionIndustry-leading expertise in custom high-end red widget productionDemons
87、trated familiarity and expertise with client widgetsThe following “ideal” supplier profile would enable client to capture full potential value: EXAMPLEValue engineeringDemonstrated creativity and ability to identify and implement value engineering ideasSupplier Requirements65Value Managed Relationsh
88、ips Client Needs ParametersSupplier RequirementsPartnership approachDesire and commitment to make client the #1 customer while serving other customers as wellCommitment to create joint value together with the clientThe following “ideal” supplier profile would enable client to capture full potential
89、value: Cost positionLow cost positionEXAMPLEValue creationCommitment to drive value across additional areasautomationfixed cost leveragesystems economicsSupplier Requirements (Continued)66Value Managed RelationshipsCDEABFKey requirementsG#5#5#5#4#4#4#3#3#3#2#2#1#1#1#2#6#6#7Total AssessmentRank:#7#7#
90、6Materials:Experience:Given current supplier capabilities, A is the closest to the “ideal” candidate profile.Red & Blue:Blue Only:Red Only:EXAMPLECapacity:BlueQuality:Value engineering:Value creation:Partnership approach:Red89%82%71%68%61%46%43%Supplier Capabilities67Value Managed RelationshipsPartn
91、ership Development ProcessEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process68Value Managed RelationshipsSources of Value:Volume C
92、onsolidationSystem EconomicsFlexibility RequirementsValue EngineeringValue DriversRedundancy eliminationFixed cost leverageMaterials purchasingAutomation potentialScale efficienciesContract durationLead time managementIdea generationdesign changesmaterials substitutionmanufacturing efficienciesValue
93、 engineering process efficiencyMulti-MaterialConsolidationFixed cost leverageMark-up eliminationOptimized value engineeringImproved efficienciesEXAMPLEMultiple opportunities were identified for VMR value.This example will focus on value engineering onlyVMR Value Drivers69Value Managed Relationships
94、Leverage Points:Idea GenerationDesignPrototypingApprovalEngineeringManufacturing/ Implementation Generate as many ideas as possibleDesign and prototype as quickly and cost efficiently as possibleOpportunities for Improvement:Client:Suppliers:Create role for procurement to facilitate VE with internal
95、 design groupPresent all ideas with cost-benefit analysis so that informed trade-offs can be madeSystematically capture ideas and leverage across suppliers, divisions, and similar widgetsMaintain list of all ideas generated for future referenceGenerate out-of-the-box ideas and quantify benefitsProvi
96、de early input / feedback to reduce number of iterations and improve yield on ideasValue Engineering Process:Opportunities for improvement for client and the supplier exist across the entire value engineering process.Ensure timely approvalIncrease approval ratesEngineer and implement as cost efficie
97、ntly as possibleProvide timely feedback to generate new ideasSystematically provide feedback and input into idea generation processProvide frequent feedback on implementation process and feasibilityCreate role for procurement to facilitate VE with internal design groupPresent all ideas with cost-ben
98、efit analysis so that informed trade-offs can be madeMaintain list of all ideas generated for future referenceWork to increase speed of approval processClarify design intent wherever neededCommunicate additional VE ideasEXAMPLEValue Engineering Levers70Value Managed RelationshipsDescriptionSkills Re
99、quiredChanges in design or specification that enable widget vendor to change manufacturing process to lower cost alternativeDevelop lower cost designselimination of widget components use components with standard specificationsuse smaller/ lighter componentsReplace single or multiple materials in wid
100、get with lower cost materialsSpecific widget knowledgeMaterials option knowledgeClient requirements understandingDesign creativitySpecific widget knowledgeIndustry component knowledgeSpecific widget knowledgeSpecific manufacturing process expertiseManufacturing alternatives expertiseAcross the three
101、 main areas of value engineering ideas, manufacturing efficiencies generate the most value.EXAMPLEValue Engineering: Sources of Savings71Value Managed RelationshipsThe approach used to capture value engineering savings will depend on the answers to the following critical questions.Are incentives nee
102、ded to encourage value engineering?Who in value chain is best positioned to drive value engineering idea and value generation?How leverageable are value engineering ideas?Key Questions:Does level of capability required exist?or can it be developed in-house?Are there cost effective outside experts ot
103、her than the supplier?Are value engineering ideas leverageable across widgets, divisions, and suppliers?What incentives exist for the supplier to do value engineering?Client captures savingsClient can outsource, contract, or bring in-houseNaturally aligned incentivesRequire value engineering as part
104、 of contractNYNYEstablish VMR in order to share savingsNo incentives or investment required or risk to supplierSomewhat, but limitedYes, significantlyRequire value engineering as part of contractLowHighReliance on supplierEXAMPLEOptions to Capture Value Engineering Savings72Value Managed Relationshi
105、psNot all value engineering ideas will be leverageableAcrossFixturesAcrossDivisionsAcrossSuppliers Suppliers are best positioned to identify/drive value engineering ideas and value generationClientClient In-HouseExpertOutsideExpertSupplierAspects of a VMR may be required to capture full savings not
106、required to have multiple suppliers in order to generate as many ideas as possibleMaterials Substitution:Design Change:Manufacturing Efficiency:Client must create incentives for the supplier to do value engineeringMaterials substitution may not have a significant impact on suppliers cost structureId
107、eas involving commitment to specific manufacturing environment may require long-term commitment= High= LowKey Answers:EXAMPLEValue Engineering Implications For Strategy73Value Managed RelationshipsValue engineering savings potential is highly dependent on degree of change implemented in look of widg
108、etSuppliers are best positioned to identify/drive highest value engineering value potentialIt is better to have fewer suppliers who are good at value engineeringmany ideas are supplier specific and not leverageable across suppliers Aspects of a VMR may be required to capture full savingssharing savi
109、ngsValue engineering opportunities total 5%-15% potential savingsValue engineering opportunities are an attractive option for the client.EXAMPLEWidget Value Engineering Takeaways74Value Managed Relationships Potential IssuesPotential Approaches to Address RiskOver-reliance on one or two supplierssup
110、pliers may take advantage of situation higher risk of “failure”Focus on suppliers who have overlapping capabilitiesSpread volumes across multiple plantsCreate pool of “second tier” suppliers who can backfill for any primary supplierInclude performance clauses into partnership contractFuture package
111、changes after client chooses a partnerChoose a partner who is consistently at the industry forefront in design and innovation as well as has a wide range of capabilitiesStructure contract to incorporate flexibilityIndustry structure changes after client chooses a partnerUse purchasing power to influ
112、ence industry structure help pick/create industry “winner”Optimal partner choice may be a supplier with whom client currently has little/no experienceBegin pilot relationships to “test” suppliers as quickly as possibleAny plan to move client toward the new procurement strategy will need to address t
113、he following issues:EXAMPLEStrategy Feasibility/Risk Evaluation75Value Managed Relationships VMR elementsConsolidate all blue widgets to partnerConsolidate all red widgets to partnerEstablish formal long-term commitmentFormalize partnershipDevelop joint savings targetsEstablish total system cost emp
114、hasisDesign quality and timelines into processesCreate highly integrated operationsPursue joint investmentsPursue value engineeringEstablish joint product designEnsure cross-functional participationCommit to frequent and planned communicationImplementPhase-inConsider in futureBy phasing in a VMR app
115、roach, client can maximize value while minimizing risk.EXAMPLEPartnership Approach76Value Managed RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR Opportunit
116、iesTrack VMR SavingsVMR Process77Value Managed Relationships12%23%28%Value engineeringVolume consolidationMulti-material consolidationSystem economicsTime advantagesValue DriversPercentage of Potential Captured by Partnership50%50%0%20%50%80%100%60%40%80%100%100%100%80%100%The phased VMR approach will create value over time.EXAMPLEPartnership Value Timeline78Value Managed Relationships VMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgendaa.tr79
