A short presentation on how to reduce costs, in a sustainable way

1. Sustainable Cost Reduction
Presented by Ray Carter
of DPSS Consultants
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3. Oil and Gas Value Chain
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4. 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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5. 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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6. 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
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7. The “Context”
Culture
Structure
Client
Client
People
Business
Models
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8. 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
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9. 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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10. 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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11. Classic Examples…….
 Russian Pencil in Space
 Swimming Pools
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12. 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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13. Spend Management
 Who spends what?
 With whom?
 When?
 How?
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14. Supply Market Analysis– Non Action/Strategy
Competing
Cartel/oligopoly Legal action
Set up consortium
Offer partnership
Break the cartel
Mature Market – no threats Develop new suppliers
Reduce entry barriers
Immature/growing market Seek out ambitious/high potential
suppliers
Government or International Build understanding,
Regulation and restrictions loopholes, seek alternatives
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15. 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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16. Example - S.T.O.P W.A.S.T.E
 Standardisation?  Weight/materials?
 Transportation mode?  Acquisition Costs?
 Outsource?  Specification?
 Process Re engineer?  Take out the gold plate?
 Elimination?
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17. Stakeholders in the Process – Blockers and
Backers
Change Agents
High
Advocates
Opponents
x
x
The only group
Understandin driving change
g of the
project
Indifferent
Followers
Blockers
Low
Against For
Agreement with the project
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18. Case Studies…….
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19. Nestle Profits from VA
Value Analysis contributed to a reduction in
total water consumption by 27%
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20. 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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21. Spend Management - Overpayments
The UK government believes it could save
£264 million lost in overpayments to
suppliers
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22. 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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23. 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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24. 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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25. 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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26. 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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27. Standardisation at Ford
Ford is planning to standardise its global small
compact cars - based upon the UK Fiesta Model
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28. Collaboration and Leverage at
Kimberly
Clark
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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29. 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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30. 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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31. Benefits…..
 Supply Chain Engagement
 Sustainable
 Environmental Impact
 Change of mind set – “Want to Need…..”
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