Transcript Document

Professional Development Learning Event – 30th April 2008
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
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 be
focused 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
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
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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
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
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Professional Development Learning Event – 30th April 2008
WHAT’S TO BE CHALLENGED ?
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
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Professional Development Learning Event – 30th April 2008
METHODOLOGY
1. Market Information
2. Market Intelligence
3. Material Costs
4. Process Costs
•
•
Earnings
Overheads
5. Some Examples
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Professional Development Learning Event – 30th April 2008
MARKET INFORMATION
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?
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Professional Development Learning Event – 30th April 2008
MARKET INFORMATION
Such information may already exist within your company.
you know if it does? If so, is the information up-to-date and relevant ?
Do
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 !
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Professional Development Learning Event – 30th April 2008
MARKET INTELLIGENCE – some useful sources of information
http://www.corporateinformation.com/Report-Information.aspx
CORPORATE
INFO
http://www.marketing-intelligence.co.uk/resources/index.htm
MARKETING
INTELLIGENCE
https://www.cia.gov/library/publications/the-world-factbook/
CIA
https://www.uktradeinvest.gov.uk/ukti/appmanager/ukti/countries
UK
TRADE INVEST
http://www.mas.dti.gov.uk/
DTi
http://www.armedforces.co.uk/index.php
ARMED
FORCES
http://www.jigsaw.com/
JIGSAW
http://cost.jsc.nasa.gov/economic.html
NASA
http://country.alibaba.com/profiles/index.htm
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):
RGE Monitor
DASA
NationMaster
The World Bank
OFNS
OECD
► http://www.rgemonitor.com/
► http://www.dasa.mod.uk/
► http://www.nationmaster.com/index.php
► http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/0,,menuPK:476823~pagePK:64165236~piPK:64165141~theSitePK:469372,00.html
► http://www.ons.gov.uk/about/our-statistics/index.html
► http://www.oecd.org/document/42/0,3343,en_2649_201185_38616362_1_1_1_1,00.html
Financial Data (including):
Graydon
Dun and Bradstreet
Experian
Bureau van Dyke
Equifax
Moodys
Hoovers
Hemscott
Companies House
FT.com
► http://www.graydon.co.uk/UKContent/UKPublicHTMLPages/About.html
► http://www.dnb.co.uk/About/DNB_Database.asp
► http://www.experian.com/corporate/index.html
► http://www.bvdep.com/en/Company%20data%20-%20international.html
► https://www.econsumer.equifax.co.uk/consumer/uk/sitepage.ehtml?forward=gb_cs_about
► http://www.moodys.com/moodys/cust/AboutMoodys/AboutMoodys.aspx?topic=intro
► http://www.hoovers.com/global/hoov/companies/index.xhtml?pageid=16184
► http://www.hoovers.com/global/corp/index.xhtml
► http://www.companieshouse.gov.uk/
► http://markets.ft.com/ft/markets/researchArchive.asp
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Professional Development Learning Event – 30th April 2008
MATERIAL COSTS
Sources of information – Metals (include):
LME
http://www.lme.co.uk/
Base Metals http://www.basemetals.com/
UK Steel
About.com
http://www.uksteel.org.uk/Download/uk%20steel%20stats%20guide%202006.pdf
http://metals.about.com/od/unitedkingdom/United_Kingdom_Metal_Suppliers.htm
Metals Forum http://www.metalsforum.org/print.htm
Stockholders (for example):
Recycling Int’l
http://www.sesmetals.co.uk/
http://www.apollometals.com/
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
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Professional Development Learning Event – 30th April 2008
MATERIAL COSTS
Sources of information – Plastics / Rubber (include):
IDES
http://www.ides.com/resinprice/resinpricingreport.asp
LME (Plastics)
Polymer Age
http://www.lme.co.uk/plastics_links.asp
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
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Professional Development Learning Event – 30th April 2008
PROCESS COSTS - EARNINGS
Sources of information
• National Statistics
• NBER
• OECD
Job Title
PRINTED CIRCUIT BOARD ASSEMBLY OPERATOR
http://www.statistics.gov.uk/cci/nugget.asp?id=285
Location
http://www.nber.org/oww/
WIGSTON, LEICESTERSHIRE
Hours
40 PER WEEK MONDAY-FRIDAY 7.25AM-4PM
Wage
http://www.oecd.org/document/0/0,3343,en_2649_34637_34053248_1_1_1_1,00.html
£5.52 PER HOUR DEPENDING ON EXPERIENCE +
BONUS
• LABORSTA http://laborsta.ilo.org/
• ASHE
http://www.statistics.gov.uk/StatBase/Product.asp?vlnk=14203
Work Pattern
DAYS
Employer
XXXXXX
DON’T FORGET:
Pension
PENSION AVAILABLE
Type
Newspapers
PERMANENT ONLY
Employment agencies
Description
Business Link:
Previous experience is essential. Duties are to
Reports (eg. KeyNote)
place components onto printed circuit boards, some
BBC
hand soldering experience required, training will be
given. We are open from 7:25am - 7pm, part time
Job centre Plus: ttp://www.jobcentreplus.gov.uk/Internet/setLocale.do?country=GB&language=en&page=/initialise.do
hours available to suit applicant.
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Professional Development Learning Event – 30th April 2008
PROCESS COSTS - EARNINGS
Median gross weekly private sector
earnings in Eastern Europe (February 2006)
Weekly 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
Country
Source: FedEE
http://www.fedee.com/PayChartEg.shtml
Median gross weekly private sector earnings:
alternative production centre's (February 2006)
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
Country
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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Professional Development Learning Event – 30th April 2008
PROCESS COSTS – Other Overheads
Sources of information
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/
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Professional Development Learning Event – 30th April 2008
PROCESS COSTS – Other Overheads
EUROPEAN ELECTRICITY PRICES 2006
0.1
0.09
0.08
0.07
0.06
0.05
0.04
Euro
per
kWh
0.03
0.02
0.01
0
FR
N
LA
C
E
D
D
C
LI
S
UB
N
EP
Y
R
R
EN
N
ED
A
PO
K
H
IN
C
ZE
A
A
G
K
Y
LA
R
ER
N
D
A
M
N
A
M
N
SW
U
C
SP
U
EN
ER
H
ET
H
D
N
G
LY
A
EL
A
IT
IR
Source: Eurostat Industrial Users (Latest Data)
Deregulation of electricity supplies in the UK has resulted in lower prices and improved
service for businesses. Electricity prices in the UK are among the most competitive in Europe.
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Professional Development Learning Event – 30th April 2008
Other Info ?
INTERNATIONAL COMPARISON OF BUSINESS COSTS 2006
4.4
Advantage
4.3
2.2
1.9
2
UK
0
F ra nc e
Netherlands
It a ly
0
Japan
Germany
US A
-2
-4
-6
-8
-10
-12
Disadvantage
-6.9
-7.4
% Cost Advantage/Disadvantage
Relative to the United States of America
-14
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.
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Professional Development Learning Event – 30th April 2008
Other Info – Fuel ?
April 2008 Averages
Source: The AA
http://www.theaa.com/motoring_advice/fuel/
See also:
http://www.theaa.com/allaboutcars/a
dvice/advice_rcosts_diesel_table.jsp
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Professional Development Learning Event – 30th April 2008
THE BENEFITS OF CHALLENGING SUPPLIER COSTS
• 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
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Professional Development Learning Event – 30th April 2008
LESSONS LEARNT
• 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
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