Presentation on theme: "Evolution of Parametric Analysis within Rolls-Royce Purchasing"— Presentation transcript:
1 Evolution of Parametric Analysis within Rolls-Royce Purchasing Martin Wakelin
2 Parametrics Position within Rolls-Royce Develop and Implement price/cost models and solutions with the supply chainValue ImprovementDefine ValueImprove ValueDeliver ValueGlobal Purchasing800 suppliers worldwide£3 billion spend 2003
3 Value Improvement Strategy Flow Commodity Strategy DevelopmentPrice NegotiationContinuous ImprovementCost ImprovementContract ReviewBoardUpfront Price reductionYear on year cost savingQ,C,D & R Improvements (Process & Engineering Change)Price ReductionCost TrackingStrategic &TacticalPerformance Improvement(incl.Inventory Management)CVP = Customer Value ProcessECR = Engineering Cost ReductionSupplier Development not part of VITotalAcquisitionCostPURCHASINGPLANSParametricsCVPECRSupplierDevelopmentLTANegotiationPrice AgreementShouldCostingParametric Analysis tool explanationThe Development Plan meeting will provide the information necessary for Value Improvement to use the best tool to achieve the business need.Supplier Cost ModellingScoping Meetings
4 Parametrics in Rolls-Royce Purchasing Where:Methodology evolved from Boeing practiceRolls-Royce have evolved toolset beyond initial functionalityWhat?:A commodity based benchmarking tool, focusing on the market prices ofproducts and their suppliers:Identifies functional relationships between a commodity and its price to represent the value delivered to the customerStatistically represents today’s market, to predict product pricing levels and identify opportunitiesWhy?:The problem facing Purchasing:Product prices have to be competitive, but …How do we know we are getting a good deal?
5 Data within price analysis Data collection focuses on:Example data set relating to a range of second hand cars…Commercial dataGeometric dataManufacturing dataDesign dataPerformance dataTechnical data
6 Data within price analysis Output is a graphical representation of market :Predicted price vs. actual priceWhat are potential causes of variance?Range of Applications :Market simulation and commodity benchmarkingLong Term Agreement negotiation supportCommercial bid analysis
7 Application: Overall Strategy Cost Support Key Technical Attribute, e.g. lengthUnit Price (£)Initial Data AnalysisTechnical Relationship, e.g. l(length) + y(speed ) + d(material) + constantUnit Price (£)Final ModelUnit Price (£)Supplier A – current pricesSupplier B – current pricesSupplier C – current pricesMarket Analysis by SupplierTechnical Relationship, e.g. l(length) + y(speed ) + d(material) + constantUnit Price (£)Supplier A – current pricesSupplier B – current pricesSupplier C – current pricesBest submitted pricesBid AnalysisTechnical Relationship, e.g. l(length) + y(speed ) + d(material) + constantUnit Price (£)Supplier A – current pricesSupplier B – current pricesSupplier C – current pricesBest submitted pricesShould CostValue for Money Analysis of Submitted BidsTechnical Relationship, e.g. l(length) + y(speed ) + d(material) + constant
8 Parametric Business Process Negotiate model to effect marketIdentify requirementDevelop ModelCollect data & Analyse Market
9 Evolution of Parametrics Parametrics is an evolving function within Rolls-Royce.New techniques and processes are being developed to suit needs of the broader business as it moves forward, these being :Matrix Pricing ModelHybrid Cost/Price ModelChanging customer baseWhat is Matrix PricingA zero-error pricing mechanism for a particular commodity :Uses functional relationships between commodities and unit prices to produce actual prices used to source partsContains agreed pricing levels, benchmarked to prove value for moneyContractually agreed with supplier
10 Matrix Pricing Model: Why do we need it ? The problems facing Purchasing:Significant Purchasing administration and operational costRemoves the slow and costly three quote processAvoids any further component level price negotiationControl over pricing in supply chain restructuring and tieringDesign builds-in cost early in development processVisibility of pricing drivers to identify focus for cost reduction initiativesOpportunities from concept stage through to design change
11 Hybrid Cost/Price Model: What?:An agreed cost model that combines the advantages of the matrix pricing structure with the detail of a cost model :Contains agreed times and all inclusive hourly rates that are benchmarked to prove they represent value for moneyWhy?:The benefits over Matrix pricing:More able to deal with high complexity commoditiesCloser alligned to manufacturing cultureActivity based pricing model supports/identifies continuous cost improvementGreater visibility for design, further opportunities from concept stage through to design changeOffers mechanism to verify cost effects of design change
12 Application: Matrix Pricing Rolls-Royce Fabricated tooling…40% of all orders in were for < £0.5k60% were < £1k85% were < £2.5kI began by making contact with a SPOC, designated by Alun Hughes.Identify sourcing groups and associated issues - describe chartNVA OPERATIONAL ACTIVITY & CUSTOMER DISSATISFACTION AT PRICE AND LEADTIMEIdentify appropriate VI strategy and toolsetPut plans in place WHAT, WHEN & HOW3400 transactions raised in 2002 all 3-quotedOperational efficiency is the driver
14 Impact: Matrix Pricing ResponsivenessSourcing Lead Times drastically reducedReduced transactional workloadAllows buyer and supplier to focus on managing supplier performance :Quality, Delivery and ResponsivenessCostParametric Price Calculator delivers savings direct to end customersGeneralConsistent, competitive, maintainable pricingBuyer up-skill - knowledge of product, price & value for money‘Sustainable improvement in partnership’READ!
15 Changing customer base: What?:Parametrics is diversifying and support is actively sought after at a senior level within the Engine Projects, Design and EngineeringUtilises existing available models to support various customersWhy?:The problem facing Engine Projects, Design and Engineering:80% of cost is built into a design at the early stagesEarly cost optimisation of designLater engineering cost reductionSupports whole engine costing at initial design stagesParametrics can and does influence the design activity
16 Summary Parametrics is: An evolving tool: Based upon technical and commercial product dataAbout understanding price variance due to product specificationMethod of evaluation at a commodity levelMethod of providing decision support informationAn evolving tool:From:A support tool to the overall negotiation process, offering an overview of the market that Rolls-Royce is buying fromTo:The solution to drive sourcing, pricing and design optimisation