A way a allocating costs based on the activities that drive those costs.

Transcription

1 STRATEGIC COST SAVINGS PLAN PRICES MANUFACTURING COSTS MANUFACTURING COSTS PER $100 OF PRODUCT ICE-ALERT COST BUILD-UP RATING insite2.gale.com ICE-ALERT DEMAND STRENGTH RATING Relationship Between Cost Estimating and Cost / Price Analysts Rate of Return Pricing Cost Build - up Pricing Activity Based Costing UNDERSTANDING COST AND PRICE ANALYSIS are transaction or selling prices for U.S.-made products. Average product price indexes measure average price movements for all primary or "core" products made by a particular industry. This data comes from the Bureau of Labor Statistics Producer Price Index program. are industry direct costs, otherwise known as per-unit manufacturing costs. This data is proprietary to ICE (Industry Cost Escalation) Model. represent an industry's cost position and provide insights about profit margins. This concept is an estimate calculated by netting out changes in average product prices and changes in manufacturing costs. Although indirect costs are not included in the estimate, this ratio provides a rough estimate of the impact of price changes (for inputs and outputs) on the margin position of an industry. is a quick way to gauge an industry's cost position. The cost build-up rating scale ranges between -100 and 100. It is designed to provide readers with a quick understanding of how a given industry's current cost position (manufacturing costs per $100 of product) compares to other positions held over the 1987-'95 period. Industries with a rating between 0 and -100 are relatively free of inflation/deflation related profit margin problems. The closer a rating is to -100, the better a given industry is doing at using differences in product price and per-unit manufacturing cost trends to its advantage. Conversely, industries with a rating between 0 and 100 are considered to be burdened with some degree of cost build-up. is a quick way to gauge an industry's domestic end-market strength. The demand strength rating scale ranges between -100 and 100. It is designed to provide readers with a quick understanding of the strength in a given industry's domestic end markets and is derived by comparing the current year-over-year growth rate in output for end markets against previous growth rates achieved over the 1987-'95 period. Industries with a rating between 0 and -100 are experiencing relatively weak demand conditions for their products. The closer a rating is to -100, the less a buyer needs to be concerned with capacity constraints and the more he or she must be concerned with low, inefficient production levels. Conversely, industries with a rating between 0 and 100 are seeing above-average growth in output of their end markets. For these industries, factors such as production economies of scale and capacity limitations are shaping producers' pricing policies. Estimated and cost/ Price analysis both consider market conditions such as historical prices paid, market inflation, quantity breaks, alternate products and advances in technology A company sets proposed profit based on investments, a desired rate of return, and projected sales The suppliers price is based on capturing total costs to produce the product plus a desired profit A way a allocating costs based on the activities that drive those costs. Total Cost of Ownership Analysis A structured approach for understanding the total cost associated with the accusation and the use of a given item or service. STRATEGIC ACTION PLAN VALUE ADDED

2 Step one is to do a broad survey of all the industries in which our suppliers operate. buyers who track the differences between escalation rates in costs and prices have one element in the margin picture that can be used in negotiations Step two, isolate those suppliers in industries with the strongest case for price rollbacks. Show our supplier the industry data and ask them how their company stacks up to the industry average data. If industry average costs and prices are declining faster than our supplier's prices, ask them to provide an analysis of why their company's pricing patterns deviate A smart and educated buyer can use cost/price analysis to engage his / her supplier in a discussion about how to reduce manufacturing costs. And if worse comes to worse, a confrontational buyer may simply have a strong argument to demand a bigger share of anticipated price cuts. Step three, is implement Supplier Development and ISO 9000 Step four is The Second Tier Supplier Program Invite our suppliers to a power point presentation that explains our vision, goals, and needs so we can develop a long profitable relation. If they do not know our needs then how can they help us lower expenditures in the future? Have designed one: Ask our suppliers to work with their own suppliers to reduce costs, or when price reductions occur through single souring, volume increases, or other cost savings due to innovative sourcing. Step Five is Forward thinking: Continuous training for those who want to become Certified Purchasing Managers or Supply Chain Managers or Certified Production Inventory Managers Step six is to implement Supply Chain Management. It requires a corporate commitment seeking to exploit the competitive advantage to be gained from leveraging the core, innovative competencies of systems of supply chain partnerships. Keep abreast on future thinking to reducing cost, the Seven Principles of Sales - Forecasting Systems, and encouraging our Purchasing / Operational / Warehouse / inventory personnel to become a member of a organization that promotes knowledge in that field of interest and increase their potential? Compete Through Supply Chain Management techniques? Are we using the Basics of Supply Chain Management which include MRPII JIT, or EOQ KEY TOPICS: Covering the planning, organizing, and controlling of such activities as transportation, inventory maintenance, order processing, purchasing, warehousing, materials handling, packaging, customer service standards, and product scheduling, it is specifically designed to help readers solve the actual problems that they will encounter in Step seven is to join the Supply-Chain Council Membership: Surpasses 400 Firms in 3 years. All types of companies with an interest in improving supplychain management efficiency are joining including major manufacturers, software vendors, providers of logistics services, consultants, researchers, and educational institutions. STRATEGIC SOURCING Purchasing and read books on Business Logistics Management : Planning, Organizing, and Controlling the Supply Chain? Become forward thinkers and apply for membership? Some of their members include: BellSouth, Procter and Gamble, W.W Grainger, Exxon Chemical Company, Dow Chemical, Johnson and Johnson, Lockheed Martin, Lucent Technologies, Siemens, Solectron and Whirlpool. QUESTIONS TO THINK ABOUT

3 Purchasing cost analysis involves studying the composition of a Do we perform cost analysis when supplier pricing is questionable? supplier's cost structure per unit of purchased output. Life-cycle cost analysis captures the total cost of a purchased product or service from "cradle-to-grave" Do we get past the "tip of the iceberg" (i.e., first cost, or acquisition cost) and study costs such as transportation and training, operation and maintenance, and reliability and disposal when making purchasing decisions? Value analysis is the systematic examination of the relationship between a product's function and its cost. Supplier cost reduction involves an ongoing and systematic effort to improve supplier productivity and to drive waste out of production processes. Cost analysis in reverse uses simple mathematical and statistical means to estimate a supplier's cost structure based on the current selling price of a product or service. Cost containment is not a one-way street where the supplier's activities are the only source of opportunities Bottom line impact is the ultimate measure of all activities, and purchasing's bottom line impact needs to be documented. Do we use value analysis to eliminate unnecessary cost? Do we work closely with our suppliers to continually reduce cost? Do we investigate the validity of all supplier requests for price increases? Do we ask our suppliers what we, the purchasing organization can do to contain cost? Do we do all we can to drive purchasing cost savings to the bottom line? Outsourcing involves obtaining needed goods or services from outside suppliers rather than producing them internally. Do we make sure that internal fixed cost can be shed or redeployed before outsourcing decisions are made? Pareto's Law implies that 20 percent of purchases account for 80 percent of dollars spent by the organization. Purchasers should focus on the "critical few" purchases so that the efficacy of purchasing's cost-containment efforts is not diluted. Ordering in large amounts from one supplier usually results in better per-unit pricing reflective of volume discounts. Do we focus our attention on the critical few purchases? Are we single-sourcing and utilizing integrated suppliers to help us lower costs. Single-sourcing and electronic ordering helps reduce the costs of transacting low-dollar, commodity items, which can cost just as much to procure as more specialized items. And, automatic reordering of standard items via an EDI system. Are we freeing up the procurement specialist for greater value added tasks such as forward research, improving the process or eliminating cost? EDI reduces Non value added cost and bar coding improves Inventory accountability STRATEGIC SOURCING Are we planning on standardizing parts through single sourcing and making plans to implement all part numbers into our system? Basis rules of EDI and maintaining at least 90 % accuracy on inventory. MORE QUESTIONS TO THINK ABOUT

4 Savings result when suppliers share best practices, provide training, give more favorable payment terms, or improve internal operations Are we calling our top suppliers and asking for their value added technical support in helping us solve problems with their products or our process?. Savings result when we communicate our vision, and goals with Are we calling our top suppliers and asking them for their value added technical support in helping us make our integrated suppliers so they can assist us in reducing lead decisions with new capital projects? times, cost, and future problems. Increased productivity results when we C.O.D.E our cost savings with every department and every employee. A feeling of appreciation and accomplishment. Send out a 1 page newsletter to all employee that indicates any / all cost savings. Only takes 30 min form each department to write a 5 line article, Then I would cut and paste, then give it to some one to approve and make 300 copies. This would be helpful and ease the blow if the yearly bonus is less then anticipated. l. SITUATION ANALYSIS RESPONSE PRESENT POSITIONING PRESENTLY EXPENDITURES ARE TOO HIGH. A. HISTORICAL BACKGROUND CONTIUS DEMAND HAS CASUED AN INCREASE IN PRODUCTION WHICH HAS CASUED A DECREASE IN FORWARD THINKING. B. PARETO LAW 80 % OF THE EFFECTS COME FROM 20 % OF THE POSSIBLE CAUSES. 1} CAUSES AND EFFECTS PM EMPLOYEES SPENDS 15% OF THEIR DAY LOOKING FOR PARTS OR ORDERING PARTS. LACK OF TIME NEEDED TO LOOK FOR EACH ITEM DUE TO THE FACT THERE ARE THREE AREAS WITH INVENTORY AND MOST ITEMS TAKEN OUT OF STOCK ARE SELDOM RECORDED, THEREFORE ATHER EMERGENCY ARISES DUE TO THE FACT THERE ARE T EUGH PARTS FOR THE NEXT PROJECT. LACK OF INVENTORY PLANNING, LACK OF SPC, AND LACK OF TIME NEEDED FOR PREVENTATIVE MAINTENANCE CAUSES EMERGENCY PROBLEMS. WHICH CAUSES AN INCREASE IN EXPENDITURES TO THE COMPANY. 2} COST REDUCTION OPPORTUNITIES BUILD HISTORICALLY DATA, IMPLEMENT SUPPLIER DEVOLPMENT, EOQ WITH JIT DELIVERS 3} PURCHASING ANALYSIS THE MONTHLY INVENTORY REPORT WILL SIGNAL THE PURCHASING PLANNER WHAT TO BUY AND STAGGERED DELIVERS ARRIVE SO THE ITEMS CAN BE PROPERLY CHECKED IN AND PLACED IN THE PROPER BIN LOCATION BEFORE 4} CONTINUOUS COST REDUCTION YOU CAN T MANAGE WHAT YOU CAN T CONTROL. ACCOUNTABILITY = PROFITABILITY MAIL OUT RFQ ON ALL PARS FOR SYSTEMS CONTRACT IF THEY ARE T STEELCASE Feb-99 THIS COULD THOUSANDS OF DOLLARS IN COST SAVINGS BY AUGUST 2000.

5 II OBJECTIVES RESPONSE FUTURE POSITIONING CHEMICAL PRICES $/TON ARE FORECASTED TO CONTINUE RISING THROUGH THE 4 Q OF 2000, ( PURCHASING MAGAZINE OCT 22 PG 15) PLUS LOWER INVENTORY LEVELS CAN BE GENERATED BY THE INCREASE IN PREVENTATIVE MAINTENANCE DEMAND WHICH SHOULD DECREASE PURCHASING AND INCREASE PROFITS. A. COST SAVINGS 1} WHAT LEVEL OF COST REDUCTION ONLY 5 % DECREASE IN EXPENDITURES IS PROJECTED WITH COLUMBUS PARTNERSHIPS WITHIN CAN BE ACHIEVE IN 12 MONTHS THE FIRST YEAR, BUT 5 MORE PERCENT CAN BE GAINED THOROUGH OTHER CONTINUOUS VALUE ADDED COST REDUCTION PROJECTS AT THE MAYO SITE. IF PFAULDER AND CALLAWAY AGREE ON THE PROPOSED CONTRACT, THAT 5% COST SAVINGS ALONE 30 THOUSAND DOLLARS IN SAVINGS. 2} ANTICIPATED 2 YEAR THE COLUMBUS PARTNERSHIP SHOULD BE ABLE TO GENERATE A MODEST 8 % COST SAVINGS) FOR THE 2ND YEAR THROUGH RENEGOTIATED CONTRACTS BASED ON INCREASED VOLUME DISCOUNTS. LOCAL SYSTEMS AND BLANKET CONTRACTS COULD GENERATE AN ADDITIONAL 3-5%. PLUS WORKING WITH MAINTENANCE / ENGINEERING MANAGEMENT ON OTHER POTENTIAL COST SAVINGS PROJECTS COULD GENERATE ADDITIONAL 3% COST SAVINGS. B. PROFIT OBJECTIVES 1} PROJECTED LEVELS OF PROFITS ESTIMATED 20 % AVERAGE SAVINGS CAN BE ACCOMPLISHED IN THE NEXT 5 YEARS IF NAPM PURCHASING AND APICS INVENTORY PROCEDURES ARE IMPLEMENTED WITHIN THE NEXT 18 MONTHS AND IF THE CORRECT AMOUNT IS BUDGETED FOR NEW MATERIAL, AND THERE IS ONLY MODEST INFLATION IN PRICES TO PURCHASE MAINTENANCE REPAIR AND OPERATIONAL EQUIPMENT. 1YR 2YR 3YR 4YR 5YR TOTAL 2} HOW IT WILL BE ACHIEVED PRICE BREAK BASED ON VOLUME QUOTED DISCOUNTS = 34% LOCAL VENDOR MANAGED INVENTORY PROGRAM = 31% BLANKET SERVICE AGREEMENT PO'S = 28% SELL SCRAP / SELLBACK = 11.5 % III STRATEGY RESPONSE HOW CAN WE GET THERE STRATEGIC PURCHASING, ANTICIPATED INCREASE IN SALES PRICE AND REDUCING MRO. INVENTORY. IMPLEMENT APICS AND NAPM PROCEDURES AND BEGIN VENDOR MANAGED INVENTORY SYSTEMS ON NUTS/ BOLTS/ GASKETS / DRILLS BITS AND STAINLESS STEEL. A. PURCHASING STRATEGY SUPPLIER DEVELOPMENT

6 1} CONTINUOUS COST SAVINGS THE PURCHASING AGENT CAN CONTINUE TO REQUEST, ANALYZE AND ENTER PURCHASING DATA, CONTINUALLY REDUCE THE SUPPLIER BASE THROUGH TRAIL AND ERROR ( T ALL SUPPLIERS FROM COLUMBUS ARE WORKING SMOOTHLY FOR OUR EMERGENCY MAINTENANCE PROBLEMS. ANALYZE USAGE'S AND CENTRALIZE INVENTORY 1ST QTR 1999 SET UP BLANKET PO'S AND SYSTEMS CONTRACTS. 2ND QTR 1999 WORK ON NEW CONTRACTS WITH BUY BACK PROGRAM 4TH QTR } IMPLEMENT DISRUPTIONAL FEES ALL MAJOR SYSTEM CONTRACTS FROM THE MAYO DIVISION WILL PUSH FOR A DISRUPTIONAL FEE IN THE CONTRACT WHICH MEANS; OUR INVENTORY; THAT IS ON HAND AT THE SUPPLIER IS ASSIGNED TO US AND IF THEY DO T HAVE IT WHEN WE REQUEST IT; THE SUPPLIER WILL BE CHARGED A DISRUPTIONAL FEE. IF PRODUCTION STOPS IT COST US MONEY. 3} COST AVOIDANCE ANALYZE USAGE, COST AND MIN / MAX. SET UP AN A. B. C INVENTORY SYSTEM. BE PROACTIVE AND CALCULATE HOW TO LOWER LEAD TIMES. ELIMINATE ALL ADDITIONAL EXPEDITING CHARGES. THESE ADDITIONAL COST COULD BE AS HIGH AS 3 THOUSAND DOLLARS PER YEAR. 4} VENDOR MANAGED INVENTORY SET UP ( VMI ) BLANKETS ON NUTS, BOLTS, AND MRO E. FINANCIAL STRATEGY 1} WHAT WILL BE THE FINANCIAL IMPACT OF THIS PLAN ON A ONE - YEAR PROJECTED INCOME STATEMENT. 2} HOW DOES PROJECTED INCOME COMPARE WITH EXPECTED REVENUE IF WE DO T IMPLEMENT THIS PLAN. IV CONCLUSION HOW DO WE GET THERE ACHIEVABLE BY UTILIZING SOME BASIC CRITERION AND INDICATORS CRITERION INDICATORS SUPPLIER DEVELOPMENT CUSTOMER Thomas Zoe SATISFACTION CONTINUOUS COMMITMENT TO OUR INTERNAL AND EXTERNAL CUSTOMERS AND LOWER 5/23/2015

7 EXPENITURES SHOULD INCREASE OUR MARKET SHARE WITHIN THE CHEMICAL INDUSTRY AS WE CONTINUE TO PRODUCE A QUALITY PRODUCT. QUALITY RELATIONSHIPS, OBJECTIVE MEASURES OF QUALITY, QUALITY IMPROVEMENTS, TOTAL QUALITY PICTURE. HUMAN RESOURCE UTILIZATION TRAINING, EMPLOYEE INVOLVEMENT, PERFORMANCE EVALUATION, AND STAFF WELL- BEING ( AT ALL LEVELS OF THE WORK FORCE, INCLUDING UPPER AND MIDDLE MANAGEMENT.) QUALITY ASSURANCE OF PRODUCTS AND SERVICES. PROCESS QUALITY, CONTINUOUS IMPROVEMENTS, AND SYSTEMATIC APPROACHES TO ASSURING A QUALITY PRODUCT WHILE REDUCING COST. LEADERSHIP HOW SENIOR MANAGEMENT SETS AND MAINTAINS ITS GOAL AND COMMUNICATES, THEM THROUGHOUT THE ORGANIZATION, SOCIAL RESPONSIBILITY, AND VALUES- DRIVEN MANAGEMENT. INFORMATION AND ANALYSIS DATA COLLECTION AND ANALYSIS, QUALITY OF THE DATA COLLECTED AND HOW THE COMPANY USES DATA TO PREVENT PROBLEMS STRATEGIC QUALITY PLANNING HOW QUALITY GOALS ARE SET AND HOW THE COMPANY PLANS TO MEET THE SHORT TERM ( 1-2 YEARS ) AND LONG TERM ( 3 YEARS OR MORE) GOALS.

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