Price – Cost – ValueThe 17 planets in the Universe called ‘Value’

For BaswareConnect ..Basware connect logo/picture in here

2015 Annual Conference …theme name in here Michelle?

‘Value’ has been redefined:

• Are you working to the new definition or are we stuck in the old world

• Is ‘Price’ no longer the holy grail in cost reduction?• What are you missing out on if you are just buying on ‘price’• What are you missing out on if you are just selling on ’price’

• Learn what the 17 planets of value are, and how you can drill into them for value creation

use conf theme slides from

Michelle

Procurement Advisory Services Pty Ltd

1994 Director of Procurement Australia and New Zealand for BOC

1997 CPO Chief Procurement Officer [Global] The BOC Group, 10 years based in London

Next 5 years in FMCG...George Weston Foods as Director of Procurement

Spent $5,000 per minute non stop for 20 Years

2011 formed Procurement Advisory Services

2012 Commissioned to NSW Government as advisor

Fellow of CIPS …the Chartered Institute of Procurement and Supply

2012-2015 Sits on the global CIPS Congress …members choice

2013 Interim Managing Director of CIPS Australasia

2014 Global President CIPS

2015 Appointed to The Board of CIPS

Guest Speaker – Craig Lardner FCIPS

Procurement Advisory Services Pty Ltd

Why bother with broadening our value-add through advanced procurement

…surely scoring the ‘best Price’ is enough

…..from here on known as the “P” word

And customised for both private and public sector goals

Procurement Advisory Services Pty Ltd

Lets see how small, scoring ‘the best price’ is, in the whole universe of what modern procurement can and does ( in some places) do.

There is 1 universe …lets call it ‘SRB …Supplier Related Benefits’.

There are 2 Galaxies…called ……….‘Cost management’ and ‘Other Value’

There are 4 Solar systems….called…. Cost reduction, Cost Avoidance, Process Improvers , Revenue Buildersand…then 17 planets, each called…..

This is too hard…I need a picture

Economy Grower

Procurement Advisory Services Pty Ltd

Supplier related Benefits

Cost managemen

t

Other value

Process Improvers

Revenue builders

Cost reduction

Cost avoidance

The 2 galaxies are The 4 solar systems are

Cost management BenefitsActivities that bring outcomes which

are more easily expressed in financial

terms. The tangibility varies from

direct price cut to a possible price rise

being deflected.

Other value BenefitsActivities that bring outcomes that

every business would cherish and

welcome. Not easy to see a financial

gain but the work of Council has

generated a positive impact on the

economy…even just a local community

economy.

The universe is

Economy grower

Procurement Advisory Services Pty Ltd

Cost managemen

t

Cost Reduction

Cost Avoidance

Waived fees

Price Increase Avoidance

No purchase history cost avoidance

Unit Price Reduction

Working Capital

Product Substitution

Demand Reduction

2 of the 4 solar systems 7 of the 17 planetsCost Reduction

BenefitsActivities that can be directly

linked to a financial

statement

(P&L, Balance Sheet or Cash

Flow ) and deliver tangible

benefits to the business.

Sometimes called ‘Hard’ Cost Avoidance Benefits

Activities that cannot be directly

linked to a financial statement (P&L,

Balance Sheet or Cash Flow ),

however they still deliver a benefit to

the business - even if they make

something NOT happen (damages,

rework).

Sometimes called ‘Soft’

1 of the 2 galaxies

Procurement Advisory Services Pty Ltd

Supplier related Benefits

Cost managemen

t

Other value

Process Improvers

Cost reduction

Cost avoidance

The 2 galaxies are The 4 solar systems are

Cost management BenefitsActivities that bring outcomes which

are more easily expressed in financial

terms. The tangibility varies from

direct price cut to a possible price rise

being deflected.

Other value BenefitsActivities that bring outcomes that

every business would cherish and

welcome. Not easy to see a financial

gain but the agency has generated a

positive impact on the economy…even

just a local economy.

The universe is

Revenue buildersEconomy grower

Procurement Advisory Services Pty Ltd

‘other value’

Benefits

Process improvers

Economy grower

Exclusivity

Competitive advantage

New customer

New product developed

Council Brand builder

Enviro helper

Risk reducer

Margin improver (not revenue related)

2 of 4 solar systems 10 of 17 planets

Process improver Benefits

Activities that can change a process

and put us in a better business

position than previously. They are

difficult to quantify but the business

wants the improvement even though a

direct and immediate cost change is

not discernable.

Economy grower Benefits

Activities that bring additional economic

energy and stimuli. These are only

where the suppliers role in the activity

was instrumental in the outcome. The

supplier could have opted not to assist

us. These are expressed in terms of the

economic lift…local and wider

Innovation improver

Safety giver

1 of the 2 galaxies

Service lifter

Promise keeper

Tax efficiency

Community builder

Procurement Advisory Services Pty Ltd

So what?

If you stop at the point of getting the ‘best price’ and don’t milk the ensuing Supplier relationship to the fullest…..

then you can’t play on all planets.

‘Best price’ gets you on 5 of the 17 planets and only in 2 solar systems.

Procurement Advisory Services Pty Ltd

Cost managemen

t

Cost Reduction

Cost Avoidance

Waived fees

Price Increase Avoidance

No purchase history cost avoidance

Unit Price Reduction

Working Capital

Product Substitution

Demand Reduction

2 of the 4 solar systems 7 of the 17 planets Cost Reduction

BenefitsActivities that can be directly

linked to a financial

statement

(P&L, Balance Sheet or Cash

Flow ) and deliver tangible

benefits to the business.

Sometimes called ‘Hard’ Cost Avoidance Benefits

Activities that cannot be directly

linked to a financial statement (P&L,

Balance Sheet or Cash Flow ),

however they still deliver a benefit to

the business - even if they make

something NOT happen (damages,

rework).

Sometimes called ‘Soft’

1 of the 2 galaxies

PP

P

P

P

Procurement Advisory Services Pty Ltd

‘other value’

Benefits

Process improvers

Economy grower

Exclusivity

New customer

New product developed

Agency Brand builder

Enviro helper

Risk reducer

Margin improver (not revenue related)

2 of 4 solar systems 10 of 17 planets

Process improver Benefits

Activities that can change a process

and put us in a better business

position than previously. They are

difficult to quantify but the business

wants the improvement even though a

direct and immediate cost change is

not discernable.Innovation improver

Safety giver

1 of the 2 galaxies

Service lifter

Promise keeper

Tax efficiency

No P’s here!

Economy grower Benefits

Activities that bring additional economic

energy and stimuli. These are only

where the suppliers role in the activity

was instrumental in the outcome. The

supplier could have opted not to assist

us. These are expressed in terms of the

economic lift…local and wider

Competitive advantage

Community builder

Procurement Advisory Services Pty Ltd

When you are the segmentor When you are the segmentee

Segmentation done by the customer to find “Suppliers of

Choice”

EMPATHISE

STRATEGIC

DE-PERSONALISE AGGREGATE

Market Disruption or Complexity

High

Low

Low HighProduct Mission

Criticality and/or spend value

High

Low

HighLow

Supplier view of customers appetite to step-up

Potential for notable Incremental gain to the

Supplier

EXPLORE

INNOVATE

DISTRACTION

STEALTH

Segmentation done by suppliers to find “Customers of Choice”

This is an SRM Union

This is NOT an SRM Union

This is also NOT an

SRM Union

Supplier (and customer) segmentation…what box have you been put in ?

Procurement Advisory Services Pty Ltd

The ‘S Curve’ – a supplier relationship Philosophy

SupplierOptimisation

Standardisation/ Simplification

Joint Product/Service Dev.

+5% +10 - 20% +15 - 35%

• local SM Solution• conventional• leveraging what

currently exists• reduction of suppliers• success is ‘savings

driven’• purchasing in isolation

of businesses process• commodity not

account management • thinking ‘price not

cost’

• proactive not reactive• cross-business teams• longer terms

arrangements• focus on ‘total cost

of ownership• to share & develop

joint process ownership mentality

• shared learning• shared outcomes• suppliers begin to see

incremental benefit from the arrangements

• full ‘partnership’• long term• shared vision • shared risks &

rewards in agreements• lowest total cost• capitalising on core

competencies• mutually agreed

performance matrix• security of supply• mutually beneficial• integrated systems &

business processes

Change inBehavioursRequired

Incremental Benefit

Stage 1

When you are selling…are

you selling in stage 1,2 or

3?

When you are buying are you in

stage 1, 2 or 3?

You don’t know?...

then you are guessing

(Not recommended)

Stage 2

Stage 3

Procurement Advisory Services Pty Ltd

Let’s sum up - Procurement in the, big, brave, new world

(It’s not that brave…and not that new …it’s always been there…hiding)

Are you working to the new definition or are we stuck in the old world?

3 special messages:

• The 17 planets in the Universe called ‘Value’• Play on all planets …not just the 5 planets of ‘price’

• Supplier segmentation …and the box your supplier has secretly put you in• Discover what box your in…then box your top 5 suppliers

• The S-Curve• Level 3 is where the pot of gold is hiding

Procurement Advisory Services Pty Ltd

Q&A

Craig Lardner FCIPSProcurement Advisory Services Pty Ltd

cg.lardner@bigpond.com+61 (0) 2 9523 3704+61 (0)406 429 668