Reducing costs by product cost analysis. Approach for innovative cost optimization at product level

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1 Reducing costs by product cost analysis Approach for innovative cost optimization at product level

2 [ 2-35 ] Agenda 1. Introduction to the topic Cost reduction by product cost analysis 2. Knowledge gained from cost structure analysis 3. Example of the use of cost structure analysis at DPWN 4. Case studies for cost structure analyses 5. Enhanced reputation for Purchasing 6. Summary 7. General presentation of costdata

3 [ 3-35 ] 1 Introduction to the topic Limited price competition in many purchasing situations Increasingly complex procurement objects (modules, systems) Highly specialized, limited supplier base Low in warehouse procurement concepts (JIT, Kanban etc.) Rising supplier-specific investments The price comparison as traditional cost-cutting strategy is excluded. Savings therefore only possible in dialogue with the incumbent supplier Community of destiny: Competitiveness of the one determines the competitiveness of the other Need for an active cost management by the purchaser

4 [ 4-35 ] 1 Introduction to the topic Increased demands for Purchasing with decreasing price competition. The Purchasing has to register the current situation quickly and independently to identify procurement opportunities and evaluate and select cost reduction strategies. analytical capability The Purchasing has to assess changed basic conditions of value added in their effect on costs, prices and assess risk in order to identify and claim potentials of cost reduction proactive simulation capability Consideration of the high dynamic market situation Procurement situation product supplier Cost transparency is the basis of an active cost management

5 [ 5-35 ] Agenda 1. Introduction to the topic Cost reduction by product cost analysis 2. Knowledge gained from cost structure anlysis 3. Example of the use of cost structure analysis at DPWN 4. Case studies for cost structure analyses 5. Enhanced reputation for Purchasing 6. Summary 7. General presentation of costdata

6 [ 6-35 ] 2 Knowledge gained from cost structure analysis Initial situation price What is the profit? How large is the room to negotiate?? How much are the product costs? Is there potential for cost reduction?

7 [ 7-35 ] 2 Knowledge gained from cost structure analysis From price to price splitting price price splitting product profit Exceeds the profit market standards? How large is the room to negotiate?? Which are the cost drivers? product costs Is there potential of cost reduction? Which strategies for cost reduction exist?

8 [ 8-35 ] 2 Knowledge gained from cost structure analysis From product costs to cost splitting product costs cost splitting other costs Impact of global cost drivers overhead costs Initial approaches for cost reduction product costs manufacturing costs Which are the cost drivers in the manufactring costs? Is there potential of cost reduction in the manufacturing? material costs Which are the most effective strategies for the reduction of manufaturing costs?

9 [ 9-35 ] 2 Knowledge gained from cost structure analysis Overview process costs

10 [ ] 2 Knowledge gained from cost structure analysis From process costs to process cost splitting process costs process cost splitting other costs interest costs maintenance process x energy costs room costs setup costs tooling costs depreciation Which are the cost dirvers of the processes? Which cost drivers have the gratest impact? personnel costs Where is a cost reduction most effectively?

11 [ ] 2 Knowledge gained from cost structure analysis material costs + material overhead costs manufacturing costs + manufacturing overhead costs + special direct costs on manufacturing development overhead costs + administration overhead costs + sales overhead costs + tooling costs freight, packaging, customs profit margin 1/2 profit margin 3 profit margin 4 material costs surcharge base: mc manufacturing costs surcharge base: mc d+a+s costs surcharge base: pc poduction costs cost price product price

12 [ ] 2 Result: Knowledge gained from cost structure analysis starting point cost transparency profit (market standard) potential for negotiation? potential for cost reduction product costs (optimised)

13 [ ] Agenda 1. Introduction to the topic Cost reduction by product cost analysis 2. Knowledge gained from cost structure analysis 3. Example of the use of cost structure analysis 4. Case studies for cost structure analyses 5. Enhanced reputation for Purchasing 6. Summary 7. General presentation of costdata

14 [ ] 3 Example of a service box Initial situation The beginning of the product life cycle Specification completely open (different product concepts) Supplier and procurement region not clear (very limited information base) Purchasing volume not clear (Consideration between 500 und 75,000 pieces/year) Offer price: > 85 Euro Analysis objective Optimization of product design in terms of cost and functionality Support for the selection of a supplier and production site Determination of cost-optimal quantity demanded Analysis of target prices

15 [ ] 3 Example of a service box Cost structure analysis Collection of overhead structures of different suppliers and locations by cost benchmarks Cost analytical evaluation of all manufacturing processes Analysis of the actual costs and derivation of target prices Simulations ans optimization calculations Value analytical optimization (material, manufacturing, overheads) Database-supported analysis of the production region with minimal manufacturing costs Risk assessment and minimization Simulation of changes in volume for the determination of scaling effects Enlarging the perspective on total cost of ownership

16 [ ] 3 Example of a service box Result Realization: Cost and price in a strong dispropotion Optimization of design, supplier and location Binding volume planning and adjustment of the manufacturing concept Negotiated price: <15 Euro (minus 85%) Significant reduction of procurement costs in future Project success Planning security for manufacturers, erhebliche Preisreduktion für DPWN Time saving Increase of the basis of information for future activities Objective and binding communication base Reduced supply and quality risk

17 [ ] Agenda 1. Introduction to the topic Cost reduction by product cost analysis 2. Knowledge gained from cost structure analysis 3. Example of the use of cost structure analysis at DPWN 4. Case studies for cost structure analyses 5. Enhanced reputation for Purchasing 6. Summary 7. General presentation of costdata

18 [ ] 4 Product cost analyses are used for a variety of issues in various sectors Areas of application for product cost analyses Application examples Review of offer prices Defence / enforcement of price increase Target costing and profitability analysis Variant evalulation product design Make-or-buy descision Relocation calculation Optimization location structure / utilization Request- / volume changes Sales support / price limits Bottleneck analysis Industry examples Mechanical- / plant engineering Chemical- / pharmaceutical industry Service / provider Consumer goods industry Food industry IT / semiconductor industry Automotive industry Energy supply

19 [ ] 4 Example of product groups For product cost analyses appropriate product groups Wiring harnesses Welding parts Drawn parts Electromechanical parts Semiconductors, PCBs PCB assembly Aluminium, magnesium, Zinc-pressure die casting parts Castings Sintered parts Glas (ESG, VSG, Floatglas) Extrusion parts Plastic parts Foam parts Injection mouldings Assembly Stamping and bent components Milling parts Turning parts Forgings Surface refinement

20 [ ] Agenda 1. Introduction to the topic Cost reduction by product cost analysis 2. Knowledge gained from cost structure analysis 3. Example of the use of cost structure analysis at DPWN 4. Case studies for cost structure analyses 5. Enhanced reputation for Purchasing 6. Summary 7. General presentation of costdata

21 [ ] 5 Internal reputational gain Target group Added value Reputational gains Business partner Deeper understanding of the product Calrification of all existing cost reduction potentials Better understanding of the requirements of the business partner Improvement of the service quality Better preparation of joint negotiations Better understanding of design-, volume-, supplier and market changes Significantly higher value added by anticipating and exploiting opf existing cost reduction potentials Improved perception of the problemsolving competence Faster response of internal requests Buyer is perceived as a consultant Stronger and earlier involvement in descisions Higher acceptance of procurement as a negotiator Time to market is shortened

22 [ ] 5 External reputational gain Target group Supplier Added value Objectification of the dialogue with focus on facts Recognition of existing levers and cost reduction strategies Increasing of competitiveness Reputational gains Contribution to the strategic partnership Perception as a value-added partner, not as a price cutter Purchasing contributes actively supplier development End customer Faster nationwide spread of (innovative) solutions Sharing the achieved savings with the end customer within the remuneration policy Improved evalualtion of supply and service quality Increased customer benefits through better perception of the price-performance ratio

23 [ ] Agenda 1. Introduction to the topic Cost reduction by product cost analysis 2. Knowledge gained from cost structure analysis 3. Example of the use of cost structure analysis at DPWN 4. Case studies for cost structure analyses 5. Enhanced reputation for Purchasing 6. Summary 7. General presentation of costdata

24 [ ] 6 Fact-based answers to common questions How commodity price increases really have an impact on product costs and prices? Is in my procurement object the bottom line already achieved or is it worth to induce competition? Is my supplier currently competitive? How can its competitiveness be sustainably increased? Is it worthwhile to think about a relocation? If so, where? Can the price level still be reduced significantly by volume expansion?

25 [ ] 6 Summary The resulting objectivity of the debate out of a cost structure analysis changes the internal and external dialogue from a price to product orientation. The improved product understanding through cost structure analyses leads to more efficient internal and external value-added partnerships. The significantly higher savings in comparison to the traditional procurement techniques result mainly from cost reduction measures not from a skimming off exess profits. The increased value contribution of the purchasing leads to an internal and external reputation gain and to a stronger perception of the leadership qualities of the purchasing.

26 [ ] 6 Advantages for the customer Rapid implementation Low cost Focussed approach: step by step first bestselling product/ purchased part with highest purchasing volume; each to a meaningful level of detail Using of internal/ external company data and industry and product type benchmarks Rapid implementation after short analysis (tool-supported), project duration typically < 6 months Product-driven cost optimization Low costs/ risks for customer in the phase of analysis by lump sum Costs of the implementation phase are part of the realized savings! Total costs usually < 30% of savings Software and databases (calculation software; benchmark- /calculation data) successfully used for > 10 years; very high accuracy in the calculation Detailled analysis down to the product and process level, inclusive cost drivers High accuracy of the data

27 [ ] Agenda 1. Introduction to the topic Cost reduction by product cost analysis 2. Knowledge gained from cost structure analysis 3. Example of the use of cost structure analysis at DPWN 4. Case studies for cost structure analyses 5. Enhanced reputation for Purchasing 6. Summary 7. General presentation of costdata

28 [ ] costdata: The best partner for your success Software developer and consultancy specialized in the calculation of product and service cost and the reduction of prices Foundation: 1997 Locations: Cologne (Head Office), Berlin, Munich Employees: 38 (as from 01/2015) Provider of calculation data / input factors Full-service-approach: consulting, software development, calculation of product and service cost, workshops and supporting Long-term partner and active companion for your cost optimization We realize solutions, that pay off for you. Industry focus: automtive industry, utility-and agricultural vehicle industry, technology and high tech industries, airplane and defence industry, machinery and equipment, telecommunications industry, service industries and others costdata in Cologne

29 [ ] costdata history some costdata customers 1997 Company foundation for the development of innovative software programs in the domain of product and service cost calculation 2001 Sale of the first product cost calculation software 2002 Introduction and connection of worldwide databases including wages and salary costs; Introduction of benchmarks of corporate cost structures (overhead costs) 2003 Integration of standard machines for fast calculation of manufacturing process costs, introduction of raw material data and prices for a simplified calculation of the product material costs 2005 Development of further software programs, e.g. industry cost control, global sourcing, service calculation, commodity index 2008 Researcher and provider of calculation data content / input factors 2010 Further development of the software programs and extension of the data content

30 [ ] costdata service portfolio costdata - complete your success - Consulting Software programs Databases We create cost transparency. Provider of global cost benchmarks - especially overhead factors -

31 [ ] Our consulting services: Best consulting in any situation Implementation of service-, product- cost calculation software Identification of cost drivers and optimization of construction and manufacturing processes (value analysis and value engineering) Calculation of relocations (national & global) 300% Target costing and make-or-buy decisions 200% 100% 0% 0% 20% 40% 60% 80% 100% Range simplification by determining the profit and loss making products Design-to-cost and total cost of ownership analysis Building up cost analysis departements Realization of saving potentials through supplier negotiations and workshops

32 [ ] Transparency of unknown cost structures: We create transparency Challenge Tools Result Evaluation of supplier and product calculation Analysis of cost structures by manufacturing engineers and cost analysts Cost transparency Optimal procurement markets Excellent negotiation preparation Basis for supplier workshops Understanding of cost structures for decision-makers Sustainable cost optimization

33 [ ] Software and databases: Always the best solution Software programs costdata calculation costdata service calculation costdata industry cost control costdata commodity index costdata linear performance pricing for product cost calculation and analysis for calculation of services for review and defense of price claims for determination of changes in commodity prices for determination of costs by the means of linear regression i.e. Data of the costdata calculation software for huge reduction of analysis time: costdata wages and salaries for 15 industries und approx. 1,100 regions worldwide costdata material costs costdata workplace costs costdata overhead costs costdata room costs, interests, energy costs, efficiencies

34 [ ] Comprehensive databases results in exactly price calculation Wages and salaries > 1,100 regions worldwide > 15 industries > 10 qualification levels Personnel costs Material costs Material costs Raw materials and semifinished products > 13,000 material prices worldwide Data content updates quarterly Overhead cost structures > 1,100 regions > 15 industries > 7 material rates (material to revenues ratios) > 20 revenue scales Overhead costs Machine costs Workplace costs Hourly machine rates and workplace costs > 15 industries > 5,000 machines in > 60 production technologies

35 [ ] Your contact: costdata GmbH Josef-Lammerting-Allee Cologne, German +49(0) Frank Weinert f.

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