ray carter sustainable cost reduction format 13 06-07 - copy
DESCRIPTION
A short presentation on how to reduce costs, in a sustainable wayTRANSCRIPT
1 DPSS CONSULTANTS
Sustainable Cost Reduction
Presented by Ray Carterof DPSS Consultants
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Oil and Gas Value Chain
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Key Questions?
Can costs be “reduced” or is it processes and behaviours/attitudes that have to change?
What does “sustainable” really mean?
Tools and Techniques?
Who should be involved in the process?
Blockers and Backers?
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Sustainable defined
Capable of being sustained
Something that can endure or is able to be maintained for long periods of time.
Able to be sustained and yet avoid depletion
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Sustainable Cost Reduction – The DPSS 7 Step Process
Step 1 Spend Management and Compliance
Step 2 Identification of Key Cost Drivers
Step 3 Value Analysis and NVA
Step 4 Standardisation, Collaboration & Aggregation
Step 5 Supply Market Analysis/Non Traditional
Step 6 Leverage the Spend and the Relationship
Step 7 Monitor and Measure DPSS CONSULTANTS
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The “Context”
ClientClient
People
Culture
Structure
BusinessModels
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Tools, Techniques and Processes
Spend Management IT Contracting models Category Management Value Analysis and Value Engineering Process Mapping S.T.O.P W.A.S.T.E model Stakeholder Management Models Target Costing Supply Market Analysis ABC Analysis Cost Pool Analysis TCO DPSS CONSULTANTS
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What is a Non Value Adding Activity?
Any activity that does not in some way enable the cost of that activity to be recovered from the customer
Activities that do not improve or enhance the final product or service
Activities the customer does not see value in…..
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Value Analysis – A means of defining “Fit for Purpose”
Value Analysis – “A systematic process aimed at ensuring that necessary functions are achieved at minimum costs”
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Classic Examples…….
Russian Pencil in Space Swimming Pools
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Volkswagen in the USA
Volkswagen produce a low cost version of the Passat – savings are being made by using a less elaborate axel…..
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Spend Management
Who spends what?
With whom?
When?
How?
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Supply Market Analysis– Non Competing
Action/Strategy
Cartel/oligopoly Legal actionSet up consortiumOffer partnershipBreak the cartel
Mature Market – no threats Develop new suppliersReduce entry barriers
Immature/growing market Seek out ambitious/high potential suppliers
Government or InternationalRegulation and restrictions
Build understanding,loopholes, seek alternatives
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The Price of Life…
The price of maize is expected to increase by about 90 per cent on the commodities market by 2030, according to a report by Oxfam.
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Example - S.T.O.P W.A.S.T.E
Standardisation? Transportation mode?
Outsource?
Process Re engineer?
Weight/materials?
Acquisition Costs?
Specification?
Take out the gold plate?
Elimination?
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Stakeholders in the Process – Blockers and Backers
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Change Agents
Agreement with the project
Understanding of the project
High
Low
Against For
Advocates
The only group driving change
Opponents
BlockersFollowers
Indifferent
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Case Studies…….
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Nestle Profits from VA
Value Analysis contributed to a reduction in total water consumption by 27%
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Laptops – Value Engineering
$300 de “specified” laptops – originally developed for poor children – are now available in the US and the EU
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Spend Management - Overpayments
The UK government believes it could save £264 million lost in overpayments to suppliers
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Procurements contribution to LG Electronics’ Profitability
The creation of an entirely new procurement organisation adopting “best practices” has resulted in $5.9 billion in direct material savings on a spend of $24.8 billion and $200 million savings on non-material, indirect spend of $7.5 billion
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Pallet company CHEP has awarded a five-year procurement outsourcing contract to Xchanging.
Under the deal, Xchanging will manage spend of £75 million on behalf of CHEP Europe. It plans to consolidate spend management across CHEP’s European businesses.
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Proclad
Proclad recently carried out a case study for Middle East operating company looking at carbon steel against a clad material. The pipeline in question is 14 inch diameter with an anticipated design life of 17 years.
Total Capex/Opex costs for a carbon steel pipeline $14,956,000
Total Capex/Opex costs for a carbon steel clad pipeline $9,996,057
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Collaboration at Siemens
Purchasing and supply at Siemens made a
“substantial contribution to earnings”
They have bundled a large share their of purchasing volume – a total of 44 per cent – across sectors (industry, energy and healthcare).
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Leverage at Lloyds
At Lloyds TSB and HBOS procurement has contributed £127 million in savings, with over 90% of spend now being through its top 1,000 suppliers
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Standardisation at Ford
Ford is planning to standardise its global small compact cars - based upon the UK Fiesta Model
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Collaboration and Leverage at KimberlyClark
Consumer products giant Kimberly-Clark has set up
a global procurement hub to help cut costs by $500 million by 2013.
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Waste Reduction at BAA
Recycling of construction materials, and emphasis on off-the-shelf purchases have helped procurement save around £260 million at BAA
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Target Costing at Tata
The Tata Nano car was based on a “target cost” via the use of Value Engineering and Supplier
collaboration
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Benefits…..
Supply Chain Engagement
Sustainable
Environmental Impact
Change of mind set – “Want to Need…..”
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