PRICE Cost Analytics Turbocharges Strategic Supplier Assessment

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2 PRICE Cost Analytics Turbocharges Strategic Supplier Assessment Breakout Session #: E16 Presented by: Melissa Winter Date: 07/25/2017 Time: 2:30 3:45 pm 1

3 Overview Evaluating Vendors and Suppliers Building an Independent Estimate of Vendor Goods and Services Normalization & Benchmarking Using Regression Data to generate cost estimating relationships for Products

4 Strategic Supplier Assessment What does it mean? Evaluate Suppliers by quantitative assessment Ensure a portfolio of best in class suppliers Measure and monitor performance of existing providers for the purpose of reducing costs, mitigating risk and driving improvement This requires: Existing data Statistical Analysis Assumptions Process, technology, rates & factors A strong Analysis gives you: knowledge and information to challenge a supplier to a fair and reasonable price. A way to determine best value for a given budget

5 Ray Carter s 10C Model 1. Competency Does your supplier have the skills to deliver the materials you require? 2. Capacity Does the supplier have an adequate engine room to produce your goods. Capacity can include equipment, human resources and materials. Can your supplier flex their capacity in line with your requirements 3. Commitment Quality is a key requirement for any business does your supplier have the commitment to maintain suitable quality performance? 4. Control Is your supplier in control of their policies and procedures? Can it ensure that its performance can be consistent. 5. Cash Does your supplier have adequate financial standing? 6. Cost The cost of the supplies, and also the full cost of the products on offer. It is interesting to note that cost is not listed as the No. 1 issue to be considered, because it is very much just one factor to be considered, the other factors are of significant importance too! 7. Consistency Does the supplier guarantee a consistent product time and time again?

6 3 C s Were Later Added 8. Culture 9. Clean 10. Communication Does the supplier share the same cultural values as your organization. Does it make sense that your supplier shares similar values and attitudes to avoid strains in the future relationship? Does your supplier have an appropriate sustainability policy? What tools will you utilize to communicate with your supplier. Another key point is who will communicate with who? For example consider how you will manage problem resolution and issue escalation.

7 Building a Product Breakdown Structure Describe the Product Make Assumptions about how the Vendor will build the product Take advantage of any know rates & factors Use database knowledge to fill in gaps Use this model to challenge the vendor s proposed costs

8 Challenging the Vendor If there are discrepancies what can be done? Verify requirements and assumptions Understand possible risks Negotiate with the Vendor

9 What is Benchmarking? A process through which an organization studies historical measurements (either its own or others) and uses the data collected to improve the way business is conducted Benchmarking is Measurement based Information intensive Objective Action-generating Benchmarking can be inward looking or it can be applied to supplier assessment

10 Benchmarking Suppliers Collect data from many different vendors Past or Current Quotes Normalize data to find a clear comparison between similar types of data points Economics factors, quantities, measurements, etc. Calibrations a technology index Plot Data points to start looking at distributions, correlations & relationships Create a new index for where technology should fall on the spectrum.

11 Hydraulic Pump Example Calibrate to a Normalized Technology Index

12 Pump Cost Metric Cost Density: A measure of pump cost per weight unit Cost Density is derived via TruePlanning calibration: Unit cost, weight, and quantity information supplied TruePlanning for hardware estimating algorithms used in reverse to derive the density for each pump that fits the its weight and cost information. Cost Density often normalizes view of each pump for comparative purposes. 11

13 Hydraulic Pump Data

14 Hydraulic Pump Example Multiple Vendors, Types of Pumps, Sizes, etc. Model each data point to represent the item in terms of Quantity built, size (weight), volume, Calibrate: Tune Manufacturing Complexity to give a known cost output MCPLX becomes normalized cost density index

15 Analyze the Data Visualize, Filter look for groupings Filter by Gear-Type Pumps, Vendor Plot different groupings to look at distributions, etc. Benchmark each Vendor

16 Visualize the Data in TrueFindings

17 Look at Groupings by Type Air Pumps Electric Pumps Hand Pumps

18 Groupings by Vendor Haldex John S. Barnes

19 Hydraulic Pump Example A new Technology Index (something vs. MCPLXS) Based on one vendor or many, depending on data filtering Look for correlations between technical/performance parameters and cost density

20 Correlations

21 Best Fit Curves

22 Multi-Variate Regression

23 Sensor Example A Collection of Various Sensors, including various technical/performance parameters.

24 Sensor Example Visualize the Data: Look for Correlations

25 Sensor Example Signal Strength correlates to Manufacturing Complexity Plug in the requirement for this parameter for the product under evaluation

26 Sensor Example Multi-Variate Regression Use Forward Selection or Backward Elimination to choose variables

27 Conclusions You can use technical and performance data along with cost information to make strategic sourcing decision Benchmarking A Normalized Technology Index will drive you to a data-driven solution A Statistically Driven Analysis is a strong basis for negotiation and effective Program Planning 26

28 BACK-UP

29 PRICE Cost Analytics Business intelligence (BI) is the set of techniques and tools for the transformation of raw data into meaningful and useful information for business analysis purposes (Wikipedia 2015) Predictive Analytics encompasses a variety of statistical techniques from modeling, machine learning, and data mining that analyze current and historical facts to make predictions about future, or otherwise unknown, events (Wikipedia 2015) Predictive Cost Analytics a field of predictive analytics specifically targeting cost and schedule estimating for products, projects, ongoing operations, other cost-incurring activities PRICE Cost Analytics a prescriptive, targeted implementation of predictive cost analytics encompassing a suite of proven processes, automation software, and predictive models Business Intelligence Predictive Analytics Predictive Cost Analytics PRICE Cost Analytics