WHAT ARE THE DRIVERS
IN THE DECISION MAKING PROCESS?
“the quantity of payment or compensation given by one party to
anothe...
Ultimately, does
this drive the
supplier to move
focus from
contracts where
their opportunity
is limited or is
more profit...
PRICE
# Element Tactic Tools Result
1 Price Reduce
price
Negotiate, leverage and
volume discounts
Margin erosion
WHAT ARE THE DRIVERS
IN THE DECISION MAKING PROCESS?
COST
Price versus Cost
Customers’ perspective
Price is what we “pay”
What we paid and what it costs are
not the same thing...
COST
Acquisition Costs Variable Costs Fixed Costs
•Tender Process Costs
•Initial Price
•Implementation Costs
•Development ...
COST
“…………..the optimum combination of whole lifecycle costs
and quality (fitness for purpose) to meet the user’s
requirem...
COST
# Element Tactic Tools Result
1 Cost Eliminate
Waste
Lean, 6 sigma and
continuous improvement
approaches
Lower total
...
VALUE
The view as to whether or not a supplier “adds value” can be a subjective one:
“Is my supplier working with me to me...
VALUE
# Element Tactic Tools Result
1 Cost Value Add Access to other
opportunities
including
revenue and
benefit in kind
C...
VALUE
# Stakeholder Concerns Value Add
1 Buyer Is there a commercial or cost
implication in relation to providing
value ad...
The considerations of Price vs Cost vs Value are driven in the
main by the customer requirement and route to market
Commod...
Price vs cost vs value - the perfect mix in the procurement process
Price vs cost vs value - the perfect mix in the procurement process
Price vs cost vs value - the perfect mix in the procurement process
Price vs cost vs value - the perfect mix in the procurement process
Price vs cost vs value - the perfect mix in the procurement process
Price vs cost vs value - the perfect mix in the procurement process
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Price vs cost vs value - the perfect mix in the procurement process

The optimum mix - the roles of price, cost and value in the decision making process by Banner Business Services. Originally presented by Ian McCreeth at eWorld Purchasing & Supply event. Banner Business Services provides office supplies and business services to central government, public sector and large corporate organisations. Our customers include the best-known brands in finance, insurance, legal, retail and many other sectors. We supply a wide range of products for every area of the workplace including furniture, technology and facilities supplies.
Published on: Mar 4, 2016
Published in: Economy & Finance      Business      
Source: www.slideshare.net


Transcripts - Price vs cost vs value - the perfect mix in the procurement process

  • 1. WHAT ARE THE DRIVERS IN THE DECISION MAKING PROCESS? “the quantity of payment or compensation given by one party to another in return for goods or services” “the value of money that has been used up to produce something” “a measure of the benefit that can be gained from either a good, service, or provider of the good or service” PRICE COST VALUE Any contract is dynamic and not static and should be considered in terms of how performance can be improved and the total cost reduced.
  • 2. Ultimately, does this drive the supplier to move focus from contracts where their opportunity is limited or is more profitable? PRICE Frequent tendering of “commodity” products tends to lead to the following: Supplier margins are squeezed Supplier behaviour is governed by assumptions made Supplier looks to influence ordering away from tendered items Does this generate a supplier/ customer relationship built on trust and mutually aligned goals? Does this activity tend to require a lot of supplier supervision? Does this encourage the supplier to work closely with the customer and understand their specific goals and challenges?
  • 3. PRICE # Element Tactic Tools Result 1 Price Reduce price Negotiate, leverage and volume discounts Margin erosion
  • 4. WHAT ARE THE DRIVERS IN THE DECISION MAKING PROCESS?
  • 5. COST Price versus Cost Customers’ perspective Price is what we “pay” What we paid and what it costs are not the same thing Suppliers’ perspective How (and when) do I recover all my costs and capture those in my “price” How well we manage the contract will determine how cost effective the outcome
  • 6. COST Acquisition Costs Variable Costs Fixed Costs •Tender Process Costs •Initial Price •Implementation Costs •Development Costs •Account Management •Customer Support •Pick/ Pack/ Despatch •Delivery •Ongoing Development •Debt •Funding •Infrastructure •Support Functions
  • 7. COST “…………..the optimum combination of whole lifecycle costs and quality (fitness for purpose) to meet the user’s requirements” Time Cost Mobilise Who is going to do what, why and when? Addressing the Challenges means we can mobilise and deliver more and sooner Methodology needs to be designed to address each lifecycle stage Learning Getting to a “steady state” quicker means we can start to improve quicker Getting Better We can identify the Risks including what we will do at the end of the contract Identify lessons learned to be applied elsewhere or in next iteration of the contract Competitors Us Exit
  • 8. COST # Element Tactic Tools Result 1 Cost Eliminate Waste Lean, 6 sigma and continuous improvement approaches Lower total cost
  • 9. VALUE The view as to whether or not a supplier “adds value” can be a subjective one: “Is my supplier working with me to meet my specific objectives?” “Is my supplier one who delivers against the contract and demands little of my time?” “Is my supplier bringing additional products and services to my attention?” Meeting contract objectives Driving cost out of the contract How does a Supplier perceive “adding value”? Consolidating the supplier base Delivering innovation Driving process improvement
  • 10. VALUE # Element Tactic Tools Result 1 Cost Value Add Access to other opportunities including revenue and benefit in kind Create or add value directly or indirectly through delivering the contract (horizontal or secondary procurement objectives)
  • 11. VALUE # Stakeholder Concerns Value Add 1 Buyer Is there a commercial or cost implication in relation to providing value add. Other commercial opportunities, 1. Sharing resources, 2. Leveraging other resources, 3. Other commercial benefits, cost reductions and enablers for other things to “happen”. 2 Specifier How does this enhance the efficacy of the solution provided. Service delivery benefits, 1. Performance, 2. More for less, 3. Drives innovation in other areas. 3 End User Does this “add” to the experience or benefit beyond the core delivery or requirements of the contract. End User, 1. Receives better and more access to other things, 2. Social, economic and environmental benefits for individuals and communities, 3. Engagement and inclusion.
  • 12. The considerations of Price vs Cost vs Value are driven in the main by the customer requirement and route to market Commoditised markets challenge solely on price It is beholden on the prospective supplier to engage early, before any tender has been specified Is the supplier willing or able to take a risk on price to then be able to move through to adding value? Demands – Commercial capability – Resource allocation – Engagement from the customer The supplier will be willing, the customer needs to be engaged and open to suggestion SUMMARY

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