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 chain
Value Improvement
Define Value
Improve Value
Deliver Value
Global Purchasing
800 suppliers worldwide
£3 billion spend 2003

3. Value Improvement Strategy Flow
Commodity Strategy Development
Price Negotiation
Continuous Improvement
Cost Improvement
Contract Review
Board
Upfront Price reduction
Year on year cost saving
Q,C,D & R Improvements (Process & Engineering Change)
Price Reduction
Cost Tracking
Strategic &
Tactical
Performance Improvement
(incl.Inventory Management)
CVP = Customer Value Process
ECR = Engineering Cost Reduction
Supplier Development not part of VI
Total
Acquisition
Cost
PURCHASING
PLANS
Parametrics
CVP
ECR
Supplier
Development
LTA
Negotiation
Price Agreement
Should
Costing
Parametric Analysis tool explanation
The Development Plan meeting will provide the information necessary for Value Improvement to use the best tool to achieve the business need.
Supplier Cost Modelling
Scoping Meetings

4. Parametrics in Rolls-Royce Purchasing
Where:
Methodology evolved from Boeing practice
Rolls-Royce have evolved toolset beyond initial functionality
What?:
A commodity based benchmarking tool, focusing on the market prices of
products and their suppliers:
Identifies functional relationships between a commodity and its price to represent the value delivered to the customer
Statistically represents today’s market, to predict product pricing levels and identify opportunities
Why?:
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 data
Geometric data
Manufacturing data
Design data
Performance data
Technical data

6. Data within price analysis
Output is a graphical representation of market :
Predicted price vs. actual price
What are potential causes of variance?
Range of Applications :
Market simulation and commodity benchmarking
Long Term Agreement negotiation support
Commercial bid analysis

7. Application: Overall Strategy Cost Support
Key Technical Attribute, e.g. length
Unit Price (£)
Initial Data Analysis
Technical Relationship, e.g. l(length) + y(speed ) + d(material) + constant
Unit Price (£)
Final Model
Unit Price (£)
Supplier A – current prices
Supplier B – current prices
Supplier C – current prices
Market Analysis by Supplier
Technical Relationship, e.g. l(length) + y(speed ) + d(material) + constant
Unit Price (£)
Supplier A – current prices
Supplier B – current prices
Supplier C – current prices
Best submitted prices
Bid Analysis
Technical Relationship, e.g. l(length) + y(speed ) + d(material) + constant
Unit Price (£)
Supplier A – current prices
Supplier B – current prices
Supplier C – current prices
Best submitted prices
Should Cost
Value for Money Analysis of Submitted Bids
Technical Relationship, e.g. l(length) + y(speed ) + d(material) + constant

8. Parametric Business Process
Negotiate model to effect market
Identify requirement
Develop Model
Collect 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 Model
Hybrid Cost/Price Model
Changing customer base
What is Matrix Pricing
A zero-error pricing mechanism for a particular commodity :
Uses functional relationships between commodities and unit prices to produce actual prices used to source parts
Contains agreed pricing levels, benchmarked to prove value for money
Contractually agreed with supplier

10. Matrix Pricing Model: Why do we need it ?
The problems facing Purchasing:
Significant Purchasing administration and operational cost
Removes the slow and costly three quote process
Avoids any further component level price negotiation
Control over pricing in supply chain restructuring and tiering
Design builds-in cost early in development process
Visibility of pricing drivers to identify focus for cost reduction initiatives
Opportunities 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 money
Why?:
The benefits over Matrix pricing:
More able to deal with high complexity commodities
Closer alligned to manufacturing culture
Activity based pricing model supports/identifies continuous cost improvement
Greater visibility for design, further opportunities from concept stage through to design change
Offers mechanism to verify cost effects of design change

12. Application: Matrix Pricing
Rolls-Royce Fabricated tooling…
40% of all orders in were for < £0.5k
60% were < £1k
85% were < £2.5k
I began by making contact with a SPOC, designated by Alun Hughes.
Identify sourcing groups and associated issues - describe chart
NVA OPERATIONAL ACTIVITY & CUSTOMER DISSATISFACTION AT PRICE AND LEADTIME
Identify appropriate VI strategy and toolset
Put plans in place WHAT, WHEN & HOW
3400 transactions raised in 2002 all 3-quoted
Operational efficiency is the driver

13. Application: Matrix Pricing

14. Impact: Matrix Pricing
Responsiveness
Sourcing Lead Times drastically reduced
Reduced transactional workload
Allows buyer and supplier to focus on managing supplier performance :
Quality, Delivery and Responsiveness
Cost
Parametric Price Calculator delivers savings direct to end customers
General
Consistent, competitive, maintainable pricing
Buyer 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 Engineering
Utilises existing available models to support various customers
Why?:
The problem facing Engine Projects, Design and Engineering:
80% of cost is built into a design at the early stages
Early cost optimisation of design
Later engineering cost reduction
Supports whole engine costing at initial design stages
Parametrics can and does influence the design activity

16. Summary Parametrics is: An evolving tool:
Based upon technical and commercial product data
About understanding price variance due to product specification
Method of evaluation at a commodity level
Method of providing decision support information
An evolving tool:
From:
A support tool to the overall negotiation process, offering an overview of the market that Rolls-Royce is buying from
To:
The solution to drive sourcing, pricing and design optimisation