貝恩咨詢-戰(zhàn)略分析工具

Author: Sheila

DubinValue

Managed

Relationships1December

1998Value

Managed

RelationshipsValueManagedRelationshipsObjectives2Aftercompletingthismodule,youwillbeableto:UnderstandVMRconceptandapplicationArticulatetypesofcostsavingsopportunitiescreatedbyVMRsUsetheBainframeworktoconductaVMRRefertorealexamplesofBai’nsV’

MRprocessandsuccessValue

Managed

Relationships3

a.trVMRConceptVMRKeySuccessFactorsVMRSourcesOfValueBainVMRProcessExampleKeyTakeawaysAgendaValue

Managed

Relationships4AValueManagedRelationship(VMR)isafullpartnershipbetweenacustomerandasupplier.Itsgoalistomaximizequalityandminimizetotalsystemcostsofdoingbusinessthroughcollaborativesharingofinformationandresources.AVMRcreatesawin/winrelationship.VMRDefinitionValue

Managed

Relationships“Partnership”

TrueVMRProcurementStrategiesValueManagedRelationshipSoleSourceVerticalIntegrationCompetitiveBidShort-termContract/Spot5Long-termContractAVMRisoneprocurementstrategytomaximizecostsavingsandstrategicvalue.WhatisaVMR?Value

Managed

Relationships6AValueManagedRelationshipcanexceedthevaluepotentialofbothverticalintegrationandtraditionallynegotiated"arm'slength"transactions:aconsolidationofpurchasestooneorfewsupplierswhoarecapableofmaintaininglongtermcompetitiveeconomics,highqualityandefficientdeliveryparticipantsmustsharesinglegoalofachievinglowestindustrysystemscostsavingsshouldbesharedtoprovidemutualongoingincentivestoeliminateredundanciesAVMR,whenappropriate,exceedsthevalueofallothertypesofrelationships.HowDoesaVMRWork?Value

Managed

RelationshipsFragmented

supplierbase,sporadic

communicationSingle

or

small

number

ofsuppliers,

frequentcommunicationPotential

for

customizedinvestment

infacilities/equipmentLong-term

commitmentfocused

upon

lowest

totalsystems

cost

using

valuechain

perspectivesJoint

product

design

andcross

functional

participationIn-house

supply,communication

frequentTraditional

"ArmsLength"ApproachVertical

IntegrationInvestments

based

uponmanufacturer's

needsMay

require

investment

inweak

strategic

businessAdversarial

bid

negotiationsto

obtain

lowest

unit

priceFocus

driven

by

internalincentives/

transfer

pricesSeparate

product

designJoint

product

design

often

atoddsVMR7

a.trVMRscan

exceedthevalueof

bothtraditionalcontractsas

well

as

verticalintegration.StrategicPurchasingOptionsValue

Managed

RelationshipsLowHighLowPurchasingvolume(relativeto

total

supplier

sales)Value-added

/engineeredlevelVMRsare

most

appropriatewhere

high

volumeandsignificantvalue

added

occurs.HighProductredesignMaterialsubstitutionMedium/lowpotentialProductredesignMaterial

substitutionVolume

discountSystem

costimprovementHighPotentialNo

/Little

opportunity(needtocluster)Volume

discountSomesystem

costModeratePotentialWhereAreVMRsAppropriate?8Value

Managed

RelationshipsIn

Which

CategoriesAre

VMRs

Most

Effective?9VMRsare

most

effective

in

large

dollar,highvalue

added

products.Largedollar

purchaseHighlevelof

value-addedcostin

productFragmentation

acrossmanydivisionsandsuppliersClient

represents

significantpartof

industry

outputIndustry

competitiveintensityhigh:capacityutilizationdroppingconsolidation

in

progressmanynew

plantslooking

for

volumehistoricalindustrypriceumbrellasValue

Managed

RelationshipsConsolidvolumeinlong-termpartnershipIncreasedpaceofinnovationleadstostrategicbenefitsforbothEnsurescontinuedsupplyforbuyerandcapacityutilizationforsupplierCommitmentandscalejustifiesjointinvestmentincostsavingsandR&D/technologyJointeffortlead

tosystem-widebenefitsfor

bothAddedvalue

leadstomorereasons

tocollaboratseA

successful

VMR

will

continueto

createavatelueasthe

relationship

progresses.ValueCycle10Value

Managed

RelationshipsVMRscreate

value

for

thebuyer.Higher

qualityand

fewerrejectsSuperior

servicePartner

injoint

system

cost

reductionInnovationTechnological

expertisepackage

performanceimprovementsspecconsolidationproduct

redesign

andmaterialssubstitutionPricing

commensuratewithlarger,

longervolume

commitmentsCommitmentto

continuousimprovement

ofthe

partnershipValueOfVMRs—Buyer11

a.trValue

Managed

Relationships12VMRscreate

value

for

suppliers.Larger

volumesin

fewer

itemslonger

runlengths

and

fewerset-upshigher

capacityutilizationlearning

curvebenefitsStable

long

term

demandSharing

inbuyer’s

strongcommitment

tofuture

growthPartner

injoint

system

cost

reductionResourcesand

stability

to

invest

in

technologyCommitmentto

continuousimprovement

ofthe

partnershipValueOf

VMRs—SupplierValue

Managed

RelationshipsVMRshaveaveraged

15%

to20%costsavings.AverageRange13BainExperiencein

VMRsValue

Managed

Relationships14

a.trAlthough

the

value

managed

relationshipcan

besophisticatedandcomplex,

the

resultsarequantifiable

andsimple.100%of

volumewithone

supplier

for

three

yearsUp

front

pricereductionof

7%Guaranteed9.8%recurrentsavings

withinthree

yearsCost-basedindexed

pricing

over

time50/50savings

sharingPenaltiesand

inspectionsbuilt-inEtc.VMR

SampleAgreementValue

Managed

Relationships15

a.trVMRConceptVMR

KeySuccessFactorsVMR

Sources

OfValueBainVMR

ProcessExampleKey

TakeawaysAgendaValue

Managed

RelationshipsOverone

half

of

existingpartnerships

do

notmeetexpectations.Thisreality

increases

the

needtounderstandandfocuson

the

key

successfactors16Partnerships

ExpectationsValue

Managed

RelationshipsStrategy,organization

and

processmustbeinplace

inorderto

ensureVMRsuccess.Clarityofandagreementonstrategy

andgoalsStrategyAppropriate

levelofinvolvementinandacrossorganizationsOrganizationProcessDetailed

and

structuredprocess

foridentifyingandimplementingopportunitiesKey

Success

Factors17Value

Managed

RelationshipsKey

Success

Factors—StrategyLongtermrelationships

focused

ontotalvaluearecriticalstrategicissues

that

must

beclearly

articulated.VMRspursued

only

where

appropriateTruesupplierpartnershipslong-termrelationships

with

one

orfewsuppliersrelationships

at

allorganizationallevelsextensivetwo-way

informationsharingsharing

ofallsavingswilling

toaddress

inherent

risksFocuson

totalvalue-chain,

not

inputpricesuppliersselected

basedon

long-term

total

valueopportunities

identifiedand

captured

acrossentiresupply

chain18Value

Managed

RelationshipsKeySuccessFactors—OrganizationInvolvementandcooperationacrosstheorganizationiscriticaltosuccess.Seniormanagementdirectinvolvementandongoinginterest/supportCross-functional

involvement

in

scheduling,logistics,design

anddevelopmentImplementationdrivenat"grass

roots"levelClearprocess

"champions"Formalized

structureandprocesstoperpetuatepartnership19Value

Managed

RelationshipsA

detailedprocessmustbeinplacetomaximizevalueandensureongoingopportunityidentification.Upfrontidentificationofopportunitiesanduniquevalueeachpartner

offersDocumentedexistenceofsignificantuntappedsystemscostvalueRigorousandfact-basedsupplierselectionExtensiveconsensus

buildingSystems

andstructures

to

perpetuateprocessKeySuccessFactors—Process20

a.trValue

Managed

RelationshipsReasons

forPartial

Success—StrategyScopeofpartnershiplimitednotwin/winFocusonpriceinstead

of

total

valuesupplierselectionbasedonpricefailure

to

consider

total

systemassourceofsavingsChosenstrategyinappropriateforpurchasecategoryAninappropriate

strategy

canprohibita

win/winrelationship.21

a.trValue

Managed

RelationshipsReasons

forPartial

Success—OrganizationPartial

successcan

becausedbyseniororlineorganizationalinadequacies.Limited

senior

management

participationLittle

cross-functional

involvement"Over-centralized"

decision

making:

Not

participative/inclusiveAd

hoc

structure

set

up

to

implement

strategy22

a.trValue

Managed

RelationshipsReasons

forPartial

Success—ProcessLack

of

internal

andexternalconsensusbuildingLack

of

"relentless

pursuit"Supplierselectionnot

rigorous

andfact-basedTechnicalopportunitiesnotidentifiedupfrontLack

of

systemsand

structurestoperpetuatetheprocessAnincomplete

processcan

alsocauselimitedsuccess.23

a.trValue

Managed

RelationshipsToachieve

successfulVMRs,thereare

severalareasofpotentialobstaclestowatchoutfor.BenefitsarevagueaProcess

ChallengesAssumptionsarema?dCeobnycseurpnpslaiebrosuthtsahtVarMinRgseaxrpeeanosnee-tainmdeptrroicdkuctinformaCommunication

ChallengesWatchoutsSufficientcommunicationofthebenefitsofchangethroughoutbothorga?tTiohnereisalackofunderstandinganinzdactioomnsmitment

tochangingthewaybusiness

is

done?ndunqualifiedBenefitsoftheVMRsiedceodnmomanicnsearnalysiNsohoansgboeinegndveavlueelopreeadlifzoartbioontahgpaerntideashasbeencreatedand/ornoVMRcham?a–rne“osfu“plllpitointeanltoia”pl”-Organizationalbarr?iSeKrsU(ep.rgo.mlifuelrtia-tiondivisionalcompanies)Watchouts24Value

Managed

Relationships25VMRConceptVMR

Key

Success

FactorsVMR

SourcesOf

ValueBain

VMR

ProcessExampleKey

TakeawaysAgendaValue

Managed

RelationshipsImproved

quality

duetoreduced

variabilityImprovedcommunicationsLongercommitmentsallowfor

longerrunlengthsPurchasing

economiesA

strong

VMRcan

capturethe

value

inherent

in

vertical

integration

whileallowing

the

client

tofocusbothcapital

andmanagement

resources

onitsprimarybusiness.ExampleSourcesofValue:Primary

Sources

ofValueVolume/ScaleEconomiesValueEngineeringandQualityImprovementSystemCostReductionTechnology

andcapabilitysharingtocreate

lowest

cost,highest

value

productJointdetermination

ofpotential

for:materialsubstitutionreductionofmaterial

contentstandardizationofmaterialsJointidentificationofredundant/duplicateprocesses,e.g.quality

controlorderprocessingtransportationengineeringmanagement

functionsimproved

inventorycontrolCrosscompany

logisticssharing

of

transportationanddistributionoperations(e.g.,leveraged

backhaulopportunities,shareddelivery

runs)25%EstimatePercent

ofTotal

Value26Created:

?

25%

?

50%Sources

of

Value

(1

of

2)Value

Managed

RelationshipsValueengineeringand

systemscost

reduction

aremostdifficulttoimplement

and

require

the

most

senior

involvment.Difficulty

ofSourceof

Value

Methodology

ImplementationSeniorManagementInvolvementAn

opendialogueregardingproductdesignbeginstooptimizedesign/costtrade-offsqualityimprovement

currentmetho

dsofinteractionaSystemsConsolidationofsuppliers?allows

thebuyertonegotiate?fBoursyheararenodfcostreduction

isnucprepmlieerjnotianltlyperxoafmit

ineVolume/scaleeconomicsValueengineeringandSources

of

Value

(2

of

2)27Disguised

exampleIncreaseof3.2

times

6%ProfitImprovementRelevant

Plant

CapacityUtilizationIncrementalMarginImpactIncreasing

asupplier’sutilizationby22%had

a6%

profit

impact.Value

Managed

RelationshipsVolume/ScaleEconomies—Example28Value

Managed

RelationshipsNew

DesignsIndexed

QualityIndexed

CostValueengineeringidentified

three

new

productoptionsthatincreased

qualityand

reducedcost.*Protypes

developedjointly

with

supplierDisguised

exampleValueEngineering—Example29Before

VMR

(5

Quality

Control

FTEs)

AfterVMR

(3

Quality

Control

FTEs)

SupplierCustomerJointQualityControlCustomerDirecttopackagingoperations=

QC

inspection

personnelandBain

clienteliminated

redundancy

and

saved40%of

quality

controlcosts.Value

Managed

RelationshipsIn

this

example

ofsystems

cost

VMR,the

suSpyplsietremsCosts—ExampleTopackagingoperationsOngoing

Feedbackto

Vendor30Value

Managed

RelationshipsSummaryofCostSavings—Example31Overall,thisclientachieveda19%costreductionthroughtheVMRexampleshown.Value

Managed

RelationshipsBainexperiencehasfoundthatthevaluefromVMRisdevelopedoverseveralyears.YearsintoVMRVolume/pricesavingsandsomelevelofvalueengineering/qualitybenefitsarerealizedveryearlyintherelationshipAdditionalvalueengineeringsavingsandsystemcostreductio

nsaremorelikelytocomelater

32ValueengineeringandqualityimprovementSystemcostreductionVolume/priceeffectTypicalTimingValue

Managed

Relationships33VMRConceptVMRKeySuccessFactorsVMRSourcesOfValueBainVMRProcessExampleKeyTakeawaysAgendaValue

Managed

RelationshipsIdentifyVMROpportunitiesUnderstandIndustryCostStructureSelectVMRCandidatesObtainTopManagementCommitmentIdentifySpecificCostReductionOpportunitiesImplementVMROpportunitiesTrackVMRSavingsVMRProcessSelectproductsforVMRbasedonpurchasingvolumeandvalue-added34AnalyzeindustryeconomicstodevelopsavingshypothesesAnalyzesupplierstoselectbestVMRcandidatesEnsureseniormanagementofclientandsupplierarefullycommittedConductanalysistoprovehypothesesandquantifysavingsopportunitiesFormalizerelationshipandimplementopportunitiesTrackprogressofsavingsandrelationshipsValue

Managed

Relationships

EXAMPLEIdentifyVMROpportunities35UnderstandIndustryCostStructureSelectVMRCandidatesObtainTopManagementCommitmentIdentifySpecificCostReductionOpportunitiesImplementVMROpportunitiesTrackVMRSavingsVMRProcessValue

Managed

RelationshipsThismatrixwillhelpyouprioritizewhichopportunitiesaremostappropriateforaVMR.ProductredesignMaterial

substitutionMedium/low

potentialProductredesignMaterialsubstitutionVolumediscountSystemcostimprovementHigh

potentialNo/LittleOpportunity(needtocluster)VolumediscountSome

system

costModerate

potentialHighLowLowHighPurchasingVolume(RelativetoTotalSupplierSales)Value-Added/EngineeredLevelPurchasing

Category

Priority36Value

Managed

RelationshipsPurchasing

Category

SelectionBecausethe

VMR

process

is

lengthyand

time

consuming,

qualitativeissues

must

alsobe

evaluated

in

selecting

where

toimplement

a

VMR.37Suppliers

andclientorganizationsmust

bewilling

towork

closelytogethercommitmanagement

time

and

effortprioritize

success

ofVMRTop

managementof

supplier

and

client

musthave

authority

tocover

full

scopeof

VMRBalanceamountof

cost

savings

withlevelofsensitivityassociated

with

product

categoryValue

Managed

RelationshipsIdentify

VMR

Opportunities38Understand

IndustryCost

StructureSelectVMR

CandidatesObtainTopManagementCommitmentIdentify

Specific

CostReduction

OpportunitiesImplementVMROpportunitiesTrack

VMRSavingsVMRProcessValue

Managed

RelationshipsUnderstandingthe

industry

structure

validates

opportunitiesthat

wereidentified

inthe

first

VMRprocess

step.Industry

Cost

Structureand

DriversIndustry

CompetitiveStructureIndustry

CapacityUtilizationHow

suitabl?e

is

thismarketand

itscompetitive

dynamicsfor

aVMR?How

importantis

theclientas

acustomerin

thisindustry?ExampleQuestions:Who

are

the

keyplayers?What

is

the

industrycapacityutilization?coststructurWhat

is

the

coststructure

of

theindustry?What

drivestWhhaitstype

of

costHowfOrnawhgatmfacetorns

dtoekdeyipslayers

compete?theindustryWhat

istheuWhtaitlidzrivaestuitoiliznatioon?feachplayer?savings

opportunitiesmight

exist?e?Understand

Industry

Structure39Value

Managed

RelationshipsIdentify

VMR

OpportunitiesUnderstand

IndustryCost

StructureSelectVMR

CandidatesObtainTopManagementCommitmentIdentify

Specific

CostReduction

OpportunitiesImplementVMROpportunitiesTrack

VMRSavingsVMRProcess40Value

Managed

RelationshipsVMR

partners

must

beable

toperform

intherelationshipandbea

willingpartner.Potentialfor

lowcostpositionStrongtechnology/qualityNewproductdevelopmenttrackrecordAdequatefinancialresourcesLong

TermWinnersCapability

andWillingnesstoDevelopaPartnershipImportantcategoryforsupplierClientimportant

tosupplierPartnershipswithothersuppliersScaletohandlevolumeIdealPartnersSupplierPrioritization41Value

Managed

RelationshipsInitial

analysis

of

thesuppliermust

beconductedtodeterminepotential

forbeinga

long-termwinnerand

capability/willingnesstodevelopa

partnership.Example

Analyses:

?

Size

andmarketshareStrategyProfitabilityCashflowQuality

philosophyand

implementationTechnology

applicationImportance

of

client’s

business

to

supplierInitial

Supplier

Evaluation42Value

Managed

RelationshipsTofurther

determinewhether

aspecificsupplierisagoodVMRcandidate,

evaluate

thevendoronavariety

of

criteria.Quality

of

ServiceSupplierCommitmentMagnitudeofCostReductionPotentialLong-TermLeadershipPotentialProduct/delivery/systemsGeographic

coverageDedication/dependenceInterestinVMRSystems

economicsFlexibilityofapproachCredibilityofplan/resourcesTechnologyScaleFinancialSupplierEvaluation43Value

Managed

RelationshipsPartnershipDevelopmentProcess44IdentifyVMROpportunitiesUnderstand

IndustryCost

StructureSelectVMR

CandidatesObtainTopManagementCommitmentIdentifySpecificCostReductionOpportunitiesImplementVMROpportunitiesTrackVMRSavingsVMRProcessValue

Managed

RelationshipsPartnershipDevelopmentProcessImplementationNegotiationsShareaggregaterespSupplierProposalsAnalysisReceiveresponsesInitialContactwithSuppliersDescribeproposedrelSetuppartnershipmanagementstructurea?nTdraroinllsotuatfftomanageprocess,expandtootherareas?oSneslecstionofsupplier(s)IdentificationofBDPandsystemcostreductiontargetsComparativeanalysisFollow-upwithplanttours,qualitychecks,etc.45?aEtliiocnitsuipppliers'attitude?sHoannadpoavretnrcaertesghioprwysi

thrtahteecgliyeannt

dvolumeexpectationsTheoptimalpartnershipdevelopmentprocessisexplicitandclearlyarticulated.Value

Managed

RelationshipsSupplierConfiguration

AlternativesNumberofSuppliers:OligopolyGiant(s)andManyFragmentedSoleSourceGiant(s)andFew15-3015-302-52-51SupplierConce

?

100%to1ntration:

supplier~80%to6-8suppliersRestwith10-20suppliers~80%to1or2suppliersRestwith15-30suppliersEvenlyamongsuppliers~80%to1or2suppliersRestwith

1-4suppliersLongtermcompetitivebidsShort

termcompetitivebidsVMRLongtermcompetitivebidsShort

termcompetitivebidsVMRLongtermcompetitivebidsShort

termcompetitivebidsVMRLongtermcompetitivebidsShort

termcompetitivebidsVMRLongtermcompetitivebidsPotentialRelationshipOptions:A

rangeof

supplierconfiguration

options,

should

beevaluated.46Value

Managed

RelationshipsChecklist

for

SuccessfulExecutionPeopleIsseniormanagementcommitted

tomakingthis

work?Haveallorganizational,cultural,

and

skillchangesbeenaddressedAretheincentivesappropriate

toensureemployeecommitment?OperationalExecutionWhatisthegovernancestructure?Howis

progressmonitored?How

willroadblocks

beresolved?Is

thereopen

sharingofrequired

information?Canalltheinformationsystemschangesbe

identifiedand

specifiedHowwillswitchdisruptionsbe

minimized?PartnerSelectionWhatistheoptimalnumberofsuppliers?Do

wereallyunderstandsupplier'scurrent

and

future

costposition?Hasthesupplierscreenincludednon-cost

parameters?Hasthesuppliermadearealistic

commitment?Is

thesuppliercommittedtodeliveringon

theagreement?ValueIs

thistheright

inputtotarget

foraVMR?industrytrack

recordproportion

ofbuyercoststructureDoesthebenefitoutweighthe

risks?switching

costsbuyer

leverageWhere

isthevalue?Stages

1,2and3short

vs.

long-termIs

thevaluerealizable?potential

hurdles

androadblocksEachofthese

issuesshouldbe

considered

inevaluatinga

VMR.47Value

Managed

RelationshipsIdentifyVMROpportunities48Understand

IndustryCostStructureSelect

VMR

CandidatesObtain

Top

ManagementCommitmentIdentifySpecific

CostReduction

OpportunitiesImplement

VMROpportunitiesTrack

VMRSavingsVMRProcessValue

Managed

Relationships49A

meaningful

trackingmechanism

must

be

put

in

place

acrossmultiple

variables

to

ensure

ongoing

results.SavingsproductcostsystemscostRelationship

statusTimingofsavingsmilestone

achievementsIndustrychangesin

industry

dynamicsintroduction

of

new

technology,

etc.TrackingValue

Managed

Relationships50

a.trVMRConceptVMR

KeySuccess

FactorsVMR

Sources

OfValueBain

VMR

ProcessExampleKey

TakeawaysAgendaValue

Managed

Relationships51Clientis

large

conglomerateproducing

15majorproductlinesCurrentrelationshipwith

suppliersis

traditionaland

somewhatadversarial

at

timesAll

data

and

vendorshave

beendisguised,howeverthis

is

an

actual

Bain

clientandcaseProductA

is

calledwidgetsthroughouttheexample–

widgetSKUs

are

called

red,blue

and

greenContext:VMRExampleValue

Managed

Relationships

EXAMPLE

52Identify

VMR

OpportunitiesUnderstand

IndustryCost

StructureSelectVMR

CandidatesObtainTopManagementCommitmentIdentify

Specific

CostReduction

OpportunitiesImplementVMROpportunitiesTrack

VMRSavingsVMRProcessUpon

evaluation

of

ABC's

product

purchases,Product

A

isthe

most

attractiveVMR

opportunity.

EXAMPLE

Value

Managed

RelationshipsABC

Company

Purchasing

Category

PriorityABCPurchasedProducts53Value

Managed

RelationshipsPurchasing

Category

SelectionProductExecutiveCommitmentProductcategory

A

has

the

most

supplier

and

client

support.CorporateWillingnesstoProductChangeRankingSupplierCommitmentSupplierCooperationProductCategory1Product

A

(Widgets)2Product

DEXAMPLE3Product

B4Product

C54Value

Managed

RelationshipsEXAMPLEIdentify

VMR

Opportunities55Understand

IndustryCost

StructureSelectVMR

CandidatesObtainTopManagementCommitmentIdentify

Specific

CostReduction

OpportunitiesImplementVMROpportunitiesTrack

VMRSavingsVMRProcessValue

Managed

RelationshipsMarketTrendsMarketOverview$1.5B

custom

widgetmarket7%

industry

growth

rateHighlyfragmented

marketlargest15

vendorscomprise60%Suppliers

tendtowardsmaterials

specializationsecondary

materialsoften

outsourcedCustomer/SupplierRelationshipsIndustry-wide,closeretailer-supplier

partnershipsarenot

commonHowever,

all

supplierssurveyed

have

hadsome

partnershipexperienceexamplesinclude:volumedrivenpricediscountsjoint

R&D/productdesigneliminationofduplicateprocessesSupplier

trendsconsolidationmovement

to

one-stopshopsprovision

ofadditional

servicesCustomer

trendsstrongpricefocusshort-term

contractcommitmentsmovement

to

multi-material

fixturesSupplier

EconomicsVariable

costsrepresent66%of

total

suppliercostsRaw

materialscostsrepresent

40%

oftotalsupplier’s

costsCustomsuppliersachieve

5%EBITmargins

on

average,butsignificant

rangesexistsSuppliers

surveyedreinvest5%

ofannualrevenuesOpportunity

exists

foroperationalimprovementoperations

arenothighly

automatednot

fullyleveragingmaterialspurchasingacrossdivisions

or

customers

EXAMPLE

56WidgetIndustry

OverviewValue

Managed

RelationshipsThe

custom

widget

market

ishighlyfragmented

withthe

top

15

suppliers

comprising

approximately

60%of

the

$1.5B

totalmarket.

EXAMPLE

57U.S.

Widget

MarketValue

Managed

RelationshipsThe

custom

widget

market

isfurtherfragmented

bycolor.

EXAMPLE

58U.S.

Custom

Widget

Market

byColorValue

Managed

Relationships

EXAMPLE

59Identify

VMR

OpportunitiesUnderstand

IndustryCost

StructureSelectVMR

CandidatesObtainTopManagementCommitmentIdentify

Specific

CostReduction

OpportunitiesImplementVMROpportunitiesTrack

VMRSavingsVMRProcessValue

Managed

Relationships1997AnnualRevenues:BusinessStrategyFocus:Primary

Color:CustomerConcentration(Percent

of

Salesto

TopFiveCustomers):AverageCapacity

?

70%Utilization:80%75%60%50%Experience

with

?

YesClient:NoNoLimitedYesWidgetmanufacturers

differ

significantlyin

termsofsize

and

capabilities.DVolumeRed,blue60%$60MBCustomizationBlueN/A$80MAOne-stopshoppingBlue40%$100MCOne-stopshoppingRed,blue33%$75MELow

costwidgetsRed42%$50M

EXAMPLE

60Supplier

ProfilesValue

Managed

RelationshipsMost

playersin

the

custom

widget

industrytendtospecialize

in

red

orblue,many

often

outsourcethesecondary

color.

EXAMPLE

61Supplier

MaterialsFocusValue

Managed

RelationshipsEBITG&ACOGS38%

24%7%12%10% 4%

5%Rent&UtilitiesWhilemanufacturers’

size

andproduct

focus

impact

their

costs,

preliminary

estimatesindicate

that

variablecostsaccount

for67%

of

average

widget

suppliers’

costs,

with

materialscomprisingaround

40%of

total

cost.Supplier

Cost

Structure(Average

Custom

Supplier)Estimatedvariablecostapprox.=

67%

of

cost

total

EXAMPLE

62Supplier

Economics:

CostStructure

DetailMost

major

fixturemanu