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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 RelationshipsVMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda3Value Managed RelationshipsA Value Managed Relationship (VMR) is a full partnership between a customer an
3、d 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 VMRProcurement StrategiesValue Managed Relations
4、hipSole 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 RelationshipsA Value Managed Relationship can exceed the value potential of both vertical integrati
5、on 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 costsavings should
6、 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, frequent commun
7、icationIn-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 lowest unit p
8、riceLong-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 both tradi
9、tional contracts as well as vertical integration.Strategic Purchasing Options7Value Managed RelationshipsHigh PotentialHighLowHighLowPurchasing volume(relative to total supplier sales)Value-added / engineered levelProduct redesignMaterial substitutionProduct redesignMaterial substitutionVolume disco
10、untSystem 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 potentialWhere Are VMRs Appropriate?8Value Managed RelationshipsLarge dollar purchaseHigh lev
11、el 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 umbrellasVMRs a
12、re 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 capacity utilization
13、 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 Cycle10Value Managed R
14、elationshipsVMRs 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 larger, longer vo
15、lume commitmentsCommitment to continuous improvement of the partnershipValue Of VMRsBuyer11Value Managed RelationshipsVMRs create value for suppliers. Larger volumes in fewer itemslonger run lengths and fewer set-upshigher capacity utilizationlearning curve benefitsStable long term demandSharing in
16、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 RangeBain Experien
17、ce 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 yearsCost-based indexe
18、d pricing over time50/50 savings sharingPenalties and inspections built-inEtc.VMR Sample Agreement14Value Managed RelationshipsVMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda15Value Managed RelationshipsOver one half of existing partnerships do not me
19、et 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 and goalsStrategyAppropriate
20、 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 that must be clearly articula
21、ted.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-chain, not input pricesuppliers
22、 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 and ongoing interest/support
23、Cross-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 process must be in place to m
24、aximize 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 buildingSystems and structures to perp
25、etuate processKey Success FactorsProcess20Value 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 purchase categoryAn inappropriate s
26、trategy can prohibit a win/win relationship.Reasons for Partial SuccessStrategy21Value Managed RelationshipsLimited senior management participationLittle cross-functional involvementOver-centralized decision making: Not participative/inclusiveAd hoc structure set up to implement strategyPartial succ
27、ess can be caused by senior or line organizational inadequacies.Reasons for Partial SuccessOrganization22Value Managed RelationshipsLack of internal and external consensus buildingLack of relentless pursuitSupplier selection not rigorous and fact-basedTechnical opportunities not identified up frontL
28、ack of systems and structures to perpetuate the processAn incomplete process can also cause limited success.Reasons for Partial SuccessProcess23Value Managed RelationshipsTo achieve successful VMRs, there are several areas of potential obstacles to watch out for.Benefits are vague and unqualifiedno
29、“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 communication of the benefits of change throughou
30、t 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 empowered to actOrganizational barriers (e.g. m
31、ulti-divisional companies)Watchouts24Value Managed RelationshipsVMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda25Value Managed RelationshipsImproved quality due to reduced variabilityImproved communicationsLonger commitments allow for longer run lengt
32、hsPurchasing 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/ScaleEconomiesValue Engineering and Quality Improvement S
33、ystem 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/duplicate processes, e.g.quality controlorder processi
34、ngtransportationengineeringmanagement 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%50%25%Sources of Value (1 of 2)26Value Manage
35、d 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 design begins to optimize design/cost trade-offsVal
36、ue 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 profitVolume/scale economicsSources of Value (2 of 2)27Va
37、lue 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 RelationshipsNew DesignsIndexed QualityIndexed
38、 CostValue engineering identified three new product options that increased quality and reduced cost.*Protypes developed jointly with supplierDisguised exampleValue EngineeringExample29Value Managed RelationshipsBefore VMR(5 Quality Control FTEs)After VMR(3 Quality Control FTEs)SupplierCustomerJoint
39、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 VendorSystems Costs Example30Value Managed Relationsh
40、ipsOverall, this client achieved a 19% cost reduction through the VMR example shown.Summary of Cost SavingsExample31Value Managed RelationshipsVolume/price savings and some level of value engineering/ quality benefits are realized very early in the relationshipAdditional value engineering savings an
41、d 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 Managed RelationshipsVMR ConceptVMR Key Success
42、 FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda33Value Managed RelationshipsIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR Saving
43、sSelect 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 analysis to prove hypotheses and quantify savings oppor
44、tunitiesFormalize relationship and implement opportunitiesTrack progress of savings and relationshipsVMR Process34Value Managed RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction Opportu
45、nitiesImplement 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(Relative to Total Supplier Sales)Value-Added/Engine
46、ered LevelProduct redesignMaterial substitutionVolume discountSystem cost improvementVolume discountSome system cost Product redesignMaterial substitutionModerate potentialHigh potentialMedium/low potentialPurchasing Category Priority36Value Managed RelationshipsBecause the VMR process is lengthy an
47、d 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 supplier and client must have authority to cover ful
48、l 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 Top Management CommitmentIdentify Specific CostRedu
49、ction 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 DriversIndustry Competitive StructureIndustry Capacity Ut
50、ilizationHow 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 utilization?What drives this cost structure?How fra
51、gmented 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 OpportunitiesUnderstand Industry Cost StructureSele
52、ct 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 partner.Potential for low cost positionStrong te
53、chnology/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 handle volumeParent company supportIdeal PartnersSu
54、pplier 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 shareStrategyProfitabilityCash flowQuality philosophy and impl
55、ementationTechnology applicationImportance of clients business to supplierInitial Supplier Evaluation42Value Managed RelationshipsTo further determine whether a specific supplier is a good VMR candidate, evaluate the vendor on a variety of criteria. Quality of ServiceSupplier CommitmentMagnitude of
56、Cost Reduction PotentialLong-Term Leadership PotentialProduct/delivery/systemsGeographic coverageDedication/dependenceInterest in VMRSystems economicsFlexibility of approachCredibility of plan/resourcesTechnologyScaleFinancialSupplier Evaluation43Value Managed RelationshipsPartnership Development Pr
57、ocessIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process44Value Managed RelationshipsImplementationSet up partnership management structure
58、 and rolloutNegotiationsShare aggregate responsesSupplier Proposals AnalysisReceive responsesInitial Contact with SuppliersDescribe proposed relationshipSelection of supplier(s)Comparative analysisElicit suppliers attitudes on a partnership with the clientTrain staff to manage process, expand to oth
59、er 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.Partnership Development Process45Value Managed Relationshi
60、psNumber 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 or 2 suppliersRest with 1-4 suppliers100% to 1 supp
61、lierLong 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 bidsPotential Relationship Options:A range of supp
62、lier 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 incentives appropriate to ensure employee commitment?Ope
63、rational 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 disruptions be minimized?Partner SelectionWhat is the optimal
64、 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?ValueIs this the right input to target for a VMR?industry
65、 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 should be considered in evaluating a VMR.Checklist for S
66、uccessful Execution47Value Managed RelationshipsIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process48Value Managed RelationshipsA meaningf
67、ul 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, etc.Tracking49Value Managed RelationshipsVMR Conc
68、eptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda50Value Managed RelationshipsClient is large conglomerate producing 15 major product linesCurrent relationship with suppliers is traditional and somewhat adversarial at timesAll data and vendors have been disguis
69、ed, 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 Cost StructureSelect VMR CandidatesObtain Top Management
70、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 Purchased ProductsABC Company Purchasing Category Priority
71、53Value Managed RelationshipsProduct category A has the most supplier and client support.Product Executive CommitmentCorporate Willingness to Product ChangeRankingSupplier CommitmentSupplier CooperationProduct Category1Product A (Widgets)2Product DEXAMPLE3Product B4Product CPurchasing Category Selec
72、tion54Value Managed RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process55Value Managed RelationshipsMarket TrendsMarke
73、t 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, close retailer-supplier partnerships are not commonHoweve
74、r, 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 servicesCustomer trends strong price focusshort-term co
75、ntract 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 significant ranges existsSuppliers surveyed reinvest 5% of ann
76、ual revenues Opportunity exists for operational improvementoperations are not highly automatednot fully leveraging materials purchasing across divisions or customersEXAMPLEWidget Industry Overview56Value Managed RelationshipsThe custom widget market is highly fragmented with the top 15 suppliers com
77、prising 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 RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureS
78、elect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process59Value Managed Relationships1997 Annual Revenues:Business Strategy Focus:Primary Color:Customer Concentration (Percent of Sales to Top Five Custome
79、rs):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 shoppingRed, blue33%75%No$75MELow cost widgetsRed42%50%Yes$
80、50MEXAMPLESupplier Profiles60Value Managed RelationshipsMost players in the custom widget industry tend to specialize in red or blue, many often outsource the secondary color.EXAMPLESupplier Materials Focus61Value Managed RelationshipsEBITG&ACOGSSupplier Cost Structure(Average Custom Supplier)38%24%
81、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 cost.Estimated variable cost approx. = 67% of cost totalEXAMP
82、LESupplier 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 purchasing.Materials PurchasingMany manufacturers are not levera
83、ging 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 divisions each purchase raw materials separatelyBlue Fixture
84、 ManufacturersRed Fixture ManufacturersManufacturing AutomationEXAMPLESupplier Operational Efficiency63Value Managed RelationshipsMost vendors surveyed reported at least some experience with partnership arrangements.Portion of Vendors Indicating Experience in Some Partnership AspectsEXAMPLEPartnersh
85、ip Experience64Value Managed RelationshipsClient Needs ParametersSupplier RequirementsCapacityPotentially, the ability to supply all of clients red, blue widget needscurrent client volume of $80M per yearMaterialsPotentially, the ability to manufacture all clients red, blue widgets QualityDemonstrat
86、ed 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 productionDemonstrated familiarity and expertise with client widgetsThe fol
87、lowing “ideal” supplier pro enable client to capture full potential value: EXAMPLEValue engineeringDemonstrated creativity and ability to identify and implement value engineering ideasSupplier Requirements65Value Managed RelationshipsClient Needs ParametersSupplier RequirementsPartnership approachDe
88、sire 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 pro enable client to capture full potential value: Cost positionLow cost positionEXAMPLEValue creationCommitment to drive va
89、lue 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#6Materials:Experience:Given current supplier capabilities, A is the closest to t
90、he “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 RelationshipsPartnership Development ProcessEXAMPLEIdentify VMR OpportunitiesUnderstand Industry C
91、ost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process68Value Managed RelationshipsSources of Value:Volume ConsolidationSystem EconomicsFlexibility RequirementsValue EngineeringValue Drive
92、rsRedundancy eliminationFixed cost leverageMaterials purchasingAutomation potentialScale efficienciesContract durationLead time managementIdea generationdesign changesmaterials substitutionmanufacturing efficienciesValue engineering process efficiencyMulti-MaterialConsolidationFixed cost leverageMar
93、k-up eliminationOptimized value engineeringImproved efficienciesEXAMPLEMultiple opportunities were identified for VMR value.This example will focus on value engineering onlyVMR Value Drivers69Value Managed RelationshipsLeverage Points:Idea GenerationDesignPrototypingApprovalEngineeringManufacturing/
94、 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 design groupPresent all ideas with cost-benefit analysis so that informed trade-
95、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 benefitsProvide early input / feedback to reduce number of iterations and improve yield on ide
96、asValue 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 efficiently as possibleProvide timely feedback to generate new ideasSystematically provi
97、de 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-benefit analysis so that informed trade-offs can be madeMaintain list of all ideas g
98、enerated for future referenceWork to increase speed of approval processClarify design intent wherever neededCommunicate additional VE ideasEXAMPLEValue Engineering Levers70Value Managed RelationshipsDescriptionSkills RequiredChanges in design or specification that enable widget vendor to change manu
99、facturing process to lower cost alternativeDevelop lower cost designselimination of widget components use components with standard specificationsuse smaller/ lighter componentsReplace single or multiple materials in widget with lower cost materialsSpecific widget knowledgeMaterials option knowledgeC
100、lient requirements understandingDesign creativitySpecific widget knowledgeIndustry component knowledgeSpecific widget knowledgeSpecific manufacturing process expertiseManufacturing alternatives expertiseAcross the three main areas of value engineering ideas, manufacturing efficiencies generate the m
101、ost 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 needed to encourage value engineering?Who in value chain is best positioned to drive
102、 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 other than the supplier?Are value engineering ideas leverageable across widgets, di
103、visions, 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 of contractNYNYEstablish VMR in order to share savingsNo incentives or investmen
104、t required or risk to supplierSomewhat, but limitedYes, significantlyRequire value engineering as part of contractLowHighReliance on supplierEXAMPLEOptions to Capture Value Engineering Savings72Value Managed RelationshipsNot all value engineering ideas will be leverageableAcrossFixturesAcrossDivisio
105、nsAcrossSuppliersSuppliers 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 required to have multiple suppliers in order to generate as many ideas as possible
106、Materials 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 structureIdeas involving commitment to specific manufacturing environment may require long-te
107、rm 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 widgetSuppliers are best positioned to identify/drive highest value engineering value
108、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 savingsValue engineering opportunities total 5%-15% potential savingsValue engineering
109、 opportunities are an attractive option for the client.EXAMPLEWidget Value Engineering Takeaways74Value Managed RelationshipsPotential IssuesPotential Approaches to Address RiskOver-reliance on one or two supplierssuppliers may take advantage of situation higher risk of “failure”Focus on suppliers w
110、ho 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 changes after client chooses a partnerChoose a partner who is consistently at the i
111、ndustry 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 influence industry structure help pick/create industry “winner”Optimal partner choice ma
112、y 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 the following issues:EXAMPLEStrategy Feasibility/Risk Evaluation75Value Managed Rela
113、tionshipsVMR elementsConsolidate all blue widgets to partnerConsolidate all red widgets to partnerEstablish formal long-term commitmentFormalize partnershipDevelop joint savings targetsEstablish total system cost emphasisDesign quality and timelines into processesCreate highly integrated operationsP
114、ursue joint investmentsPursue value engineeringEstablish joint product designEnsure cross-functional participationCommit to frequent and planned communicationImplementPhase-inConsider in futureBy phasing in a VMR approach, client can maximize value while minimizing risk.EXAMPLEPartnership Approach76
115、Value Managed RelationshipsEXAMPLEIdentify VMR OpportunitiesUnderstand Industry Cost StructureSelect VMR CandidatesObtain Top Management CommitmentIdentify Specific CostReduction OpportunitiesImplement VMR OpportunitiesTrack VMR SavingsVMR Process77Value Managed Relationships12%23%28%Value engineeri
116、ngVolume 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 Relations
117、hipsVMR ConceptVMR Key Success FactorsVMR Sources Of ValueBain VMR ProcessExampleKey TakeawaysAgenda79Value Managed RelationshipsCost reduction is an ongoing focus of well-managed companies. VMRs can help realize immediate savings, as well as institutionalize the process of continuously lowering cos
118、ts over the long termProduct sourcing is becoming increasingly visible within our clients organizations as a means of improving cost competitivenessVMRs can be used as a part of sales strategy to capture a greater share of customers businessVMRs can be very profitable for both partnersKey Takeaways80
