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Controlling Those Costs !. Presenter Graham Bailey Cost Control Manager Tesla Motors Inc. http://www.teslamotors.com/. PLEASE NOTE the web links contained within this presentation can only be opened whilst you are in ‘SLIDE SHOW’ mode. PRESENTATION OUTLINE. ● Why challenge? - PowerPoint PPT Presentation
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Professional Development Learning Event – 30th April 2008
Controlling Those Costs !
Presenter
Graham BaileyCost Control Manager
Tesla Motors Inc.http://www.teslamotors.com/
PLEASE NOTE the web links contained within this presentation can only be
opened whilst you are in ‘SLIDE SHOW’ mode
Professional Development Learning Event – 30th April 2008
PRESENTATION OUTLINE
● Why challenge?
● What’s to be challenged?
● Methodology
● The benefits
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Professional Development Learning Event – 30th April 2008
WHY CHALLENGE ?
The majority of companies send out RFQ’s to a number of potential suppliers when looking to place business
However, once responses are received, and provided all other selection criteria are more or less equal, how many customers spend time determining if the company offering the lowest price:
1. has room for further improvement (and which cost elements should befocused on during negotiation)
or, more importantly:
2. is attempting to ‘buy’ business(by offering un-realistic material prices or un-sustainable recovery rates)
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Professional Development Learning Event – 30th April 2008
WHY CHALLENGE ?
I’m sure you’ve all seen many examples of suppliers who have won business by meeting or beating a cost target or their competitors prices, when it’s later been demonstrated that by spending a little more time validating the costs provided within their, sometimes very detailed, supporting Cost Models, that there would have been significant scope for further price reduction prior to order placement
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The risks are especially high with new suppliers
It often doesn’t matter what the contract T&C’s say
When a supplier comes back to you, often some time after receiving a PO (usually just after you’ve introduced their product on line) and presents you with an unjustifiable price increase, you’re often in no position to argue
Resourcing will only mean additional costs so, more often than not, you end up paying the higher price simply to maintain production
Professional Development Learning Event – 30th April 2008
WHAT’S TO BE CHALLENGED ?
This session will look at some of the ways that you can confirm, validate or challenge the quotes and cost models submitted by your suppliers for goods and services
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Whilst the Buyer should always insist on a breakdown from the supplier to support their quote, more often than not this either does not happen or it’s not closely analysed
Don’t forget to interrogate the NRC’s (tools, R&D or capital equip./ facilities)
Don’t be put off by the statement, “We don’t give breakdowns ! ”. If you push enough, even the largest suppliers will start to open up, providing the basics from which you can start to construct a cost model for their product
A supplier who can’t or won’t provide a breakdown in support of their quote has to be treated with some suspicion
Professional Development Learning Event – 30th April 2008
WHAT’S TO BE CHALLENGED ?
6
However, the supplier needs to trust that any information they divulge to you will be treated in the utmost confidence
This can be supported by not showing them information from their competitors or even allowing sensitive files to be lying around on your desk. For suppliers to your industry, it’s a very small world and word does and will get back to them
We may not like or agree with the breakdown a supplier provides. If, for example, a supplier shows they’ve added a 30% margin to their costs, don’t immediately jump down their throats (it may well be that case that this % mark-up is made up of overhead elements in a manner different to others, or maybe this is the norm for their industry peer group and their competitors will be recovering similar margins, but have presented these elsewhere within their cost models)
Focus on the make-up of claimed manufacturing costs. On occasions, it may even be the case that you can agree to ‘ring-fence’ a reasonable profit value, in return for reducing the base costs
Analysis of even the most basic of cost models can highlight areas of doubt concerning supplier assumptions / pricing integrity or simply opportunities to eliminate waste and non-added value during negotiations
Professional Development Learning Event – 30th April 2008
METHODOLOGY
9
1. Market Information
2. Market Intelligence
3. Material Costs
4. Process Costs
• Earnings• Overheads
5. Some Examples
Professional Development Learning Event – 30th April 2008
In order to generate ‘best value’ cost estimates or to establish credibility of a quoted price, there is value in understanding what the global market has to offer
Do you know which areas of the world or indeed which regions of the UK (subject to governing sourcing strategy), can offer the technical capability, quality and logistics requirements necessary for your particular products or services?
MARKET INFORMATION
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Professional Development Learning Event – 30th April 2008
MARKET INFORMATION
Such information may already exist within your company. Do you know if it does? If so, is the information up-to-date and relevant ?
If not, why not gather your own market information ?
Do you set cost targets based on UK manufacture, Low Cost Country manufacture or manufacture somewhere else? How flexible is your system?
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Professional Development Learning Event – 30th April 2008
MARKET INFORMATION
Once you’ve identified regions of relevant expertise, evaluating the economic variances for these regions is a relatively simple task
Such information can add significant value to your Cost Estimating / Cost Engineering services, allowing you to generate tighter, more competitive cost targets and provide advice to the purchasing team as to which economic regions meet the criteria for achieving them
Go on, provide your purchasing staff with a challenge ! 12
Professional Development Learning Event – 30th April 2008
MARKET INTELLIGENCE – some useful sources of information
http://www.corporateinformation.com/Report-Information.aspx
http://www.marketing-intelligence.co.uk/resources/index.htm
https://www.cia.gov/library/publications/the-world-factbook/
https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/countries
http://www.mas.dti.gov.uk/
http://www.armedforces.co.uk/index.php
http://www.jigsaw.com/
http://cost.jsc.nasa.gov/economic.html
http://country.alibaba.com/profiles/index.htm
CORPORATE INFO
MARKETING INTELLIGENCE
CIA
UK TRADE INVEST
DTi
ARMED FORCES
JIGSAW
NASA
Alibaba
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Professional Development Learning Event – 30th April 2008
MARKET INTELLIGENCE – for example:
Trade directories:
QIMTEK ► http://www.qimtek.co.uk/default.aspx
Automotive On-line ► http://www.automotive-online.com/suppliers-directory.html
Economic / Statistical Data (including):
Financial Data (including):
Graydon ► http://www.graydon.co.uk/UKContent/UKPublicHTMLPages/About.html
Dun and Bradstreet ► http://www.dnb.co.uk/About/DNB_Database.asp
Experian ► http://www.experian.com/corporate/index.html
Bureau van Dyke ► http://www.bvdep.com/en/Company%20data%20-%20international.html
Equifax ► https://www.econsumer.equifax.co.uk/consumer/uk/sitepage.ehtml?forward=gb_cs_about
Moodys ► http://www.moodys.com/moodys/cust/AboutMoodys/AboutMoodys.aspx?topic=intro
Hoovers ► http://www.hoovers.com/global/hoov/companies/index.xhtml?pageid=16184
Hemscott ► http://www.hoovers.com/global/corp/index.xhtml
Companies House ► http://www.companieshouse.gov.uk/
FT.com ► http://markets.ft.com/ft/markets/researchArchive.asp
RGE Monitor ► http://www.rgemonitor.com/
D A S A ► http://www.dasa.mod.uk/
NationMaster ► http://www.nationmaster.com/index.php
The World Bank ► http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/0,,menuPK:476823~pagePK:64165236~piPK:64165141~theSitePK:469372,00.html
OFNS ► http://www.ons.gov.uk/about/our-statistics/index.html
OECD ► http://www.oecd.org/document/42/0,3343,en_2649_201185_38616362_1_1_1_1,00.html
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Professional Development Learning Event – 30th April 2008
Sources of information – Metals (include):
MATERIAL COSTS
16
LME http://www.lme.co.uk/
Base Metals http://www.basemetals.com/
UK Steel http://www.uksteel.org.uk/Download/uk%20steel%20stats%20guide%202006.pdf
About.com http://metals.about.com/od/unitedkingdom/United_Kingdom_Metal_Suppliers.htm
Metals Forum http://www.metalsforum.org/print.htm
Stockholders (for example): http://www.sesmetals.co.uk/ http://www.apollometals.com/
Recycling Int’l http://www.recyclinginternational.com/markets/nickel_stainless.aspx
Directories (for example): http://www.1800miti.com/links/wholesale/metal/service-centers.html
http://www.powersourcing.com/sf/cobalt.htm
Professional Development Learning Event – 30th April 2008
Sources of information – Plastics / Rubber (include):
MATERIAL COSTS
17
IDES http://www.ides.com/resinprice/resinpricingreport.asp
LME (Plastics) http://www.lme.co.uk/plastics_links.asp
Polymer Age http://www.polymer-age.co.uk/prices.htm#polyethylene
Plastics Technology http://www.ptonline.com/dp/pt/resins.cfm
GlobalSpec http://materials.globalspec.com/Industrial-Directory/resin_price
COMPOSITES WORLD http://www.compositesworld.com/sb
Stockholders (for example): http://www.chesterfield-plastics.co.uk/catalogue.php http://www.resinexgroup.com
Professional Development Learning Event – 30th April 2008
• National Statistics http://www.statistics.gov.uk/cci/nugget.asp?id=285
• NBER http://www.nber.org/oww/
• OECD http://www.oecd.org/document/0/0,3343,en_2649_34637_34053248_1_1_1_1,00.html
• LABORSTA http://laborsta.ilo.org/
• ASHE http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=14203
PROCESS COSTS - EARNINGS
Sources of information
19
DON’T FORGET:
NewspapersEmployment agenciesBusiness Link:Reports (eg. KeyNote)BBC Job centre Plus: ttp://www.jobcentreplus.gov.uk/Internet/setLocale.do?country=GB&language=en&page=/initialise.do
Job Title PRINTED CIRCUIT BOARD ASSEMBLY OPERATOR
Location WIGSTON, LEICESTERSHIRE
Hours 40 PER WEEK MONDAY-FRIDAY 7.25AM-4PM
Wage £5.52 PER HOUR DEPENDING ON EXPERIENCE + BONUS
Work Pattern DAYS
Employer XXXXXX
Pension PENSION AVAILABLE
TypePERMANENT ONLY
Description
Previous experience is essential. Duties are to place components onto printed circuit boards, some hand soldering experience required, training will be given. We are open from 7:25am - 7pm, part time hours available to suit applicant.
Professional Development Learning Event – 30th April 2008
Median gross weekly private sector earnings in Eastern Europe (February 2006)
CountryWeekly pay in
euros †Index: Germany =
100
Bulgaria 37 5
Croatia 182 25
Czech Republic 145 20
Estonia 104 14
Hungary 135 19
Latvia 68 9
Lithuania 89 12
Poland 147 20
Romania 66 9
Slovakia 113 16
Slovenia 247 34
Source: FedEEhttp://www.fedee.com/PayChartEg.shtml
Median gross weekly private sector earnings: alternative production centre's (February 2006)
Country Weekly pay in euros †Index: Germany =
100
India (directly employed regular workers)
22 3
China (urban workers) 34 5
Russian Federation 56 8
Brazil (Rio de Janeiro) 85 12
South Korea 475 66
Source: National statistical offices and economic agencies
Notes: † Pre-tax pay expressed in euros, based on a five-day week of 40 hours. All figures rounded to nearest euro.
* Eastern Europe has been taken to include eight of the states that joined the European Union on May 1st 2004 plus the EU accession states, Romania and Bulgaria, and the EU candidate country, Croatia.
** Pay in Europe is published annually and contains benchmark pay tables with hourly rates for 32 standard job positions in 48 European countries and territories. .
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PROCESS COSTS - EARNINGS
Professional Development Learning Event – 30th April 2008
Energy & Utilities (include) :
Eurostat http://www.eustatistics.gov.uk/themes/environment/datalinks/index.asp
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=er02c2&plugin=1&tableSelection=1&footnotes=yes&labeling=labels
BERR http://www.berr.gov.uk/energy/statistics/publications/prices/tables/page18125.html
GFD https://www.globalfinancialdata.com/
OFGEM http://www.ofgem.gov.uk/CustomPages/Pages/Results.aspx?k=prices
Energy Information Administration http://www.eia.doe.gov/
PROCESS COSTS – Other Overheads
Sources of information
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Professional Development Learning Event – 30th April 2008
EUROPEAN ELECTRICITY PRICES 2006
Source: Eurostat Industrial Users (Latest Data)
Deregulation of electricity supplies in the UK has resulted in lower prices and improvedservice for businesses. Electricity prices in the UK are among the most competitive in Europe.
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
IRELAND
ITALY
GERM
ANY
NETHERLANDS
DENMARK
HUNGARY
SPAIN
CZECH REPUBLIC
UK SWEDEN
POLAND
FRANCE
Euro
per
kWh
22
PROCESS COSTS – Other Overheads
Professional Development Learning Event – 30th April 2008
INTERNATIONAL COMPARISON OF BUSINESS COSTS 2006
2.2 1.9
0
-6.9-7.4
-14
-12
-10
-8
-6
-4
-2
0
2
France Italy USA
Source: KPMG Competitive Alternatives Report 2006
The eight month research programme covered more than 2,000 individual business scenarios in 121 cities throughout Australia, Canada, France, Germany, Italy, Japan, The Netherlands, the UK and the USA. The basis for comparison is the after-tax cost of start-up and operations for 12 specific types of business, over a ten-year time horizon.
Advantage
Disadvantage
% Cost Advantage/Disadvantage Relative to the United States of America
4.4 4.3
JapanUK
Netherlands
Germany
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Other Info ?
Professional Development Learning Event – 30th April 2008
Other Info – Fuel ?April 2008 Averages
http://www.theaa.com/motoring_advice/fuel/
Source: The AA
http://www.theaa.com/allaboutcars/advice/advice_rcosts_diesel_table.jsp
See also:
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Professional Development Learning Event – 30th April 2008
• Better Prices !
• Message to suppliers that you expect quotes to have integrity from day one
• Clearly highlights areas of cost variance at the supplier selection stage
• Provides objective data when analysing future QAF’s, negotiating new prices or challenging Price Increase Claims
• Builds confidence in your own estimates
• Supports development of a cost history database and cost trackers
• Sorts ‘those who do’ from ‘those who don’t’ when it comes to the ‘OPEN BOOK’ issue
THE BENEFITS OF CHALLENGING SUPPLIER COSTS
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Professional Development Learning Event – 30th April 2008
• Be clear and direct with your suppliers as to what you want, why you want it and what the benefits will be for all
• Don’t be afraid to ask and to keep asking
• Maintain good records
• Maintain confidentiality at all times
• Request a breakdown in the suppliers own cost model format, before you present them with your ‘Standard’ QAF form. You’ll often get far more information than you realise
• Provide feedback to those suppliers who are unsuccessful, yet provided sufficient cost breakdown, so as they may also gain from sharing information with you. This need only be a generic benchmark positioning to their ‘un-named’ competitors
LESSONS LEARNT
30