April 1012, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing,

NCMA World Congress 2006:

Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management2

April 10–12, 2006Hyatt Regency AtlantaAtlanta, GA

Breakout Session #208 Wayne Kost, VP, Global Supply Management, Inc.Stephen Sopko, CEO, Cedar Key Ventures, LLC

Wednesday, April 12, 2006 10:45 – 11:45 AM

TriangulatingTCO, Quality, Contracting




Blending TCO, Quality and Contracts

• Foundation• Process• Benefits• Application to Actual Scenarios




Total Cost of Ownership | Overview

• Defined• Basic Implementation• Advanced Implementation• Using TCO to Define Requirements• Using TCO to Assess Processes

– Procurement– Sales




TCO Defined

• Total Cost of Ownership• Tough to Define, Situational• Includes All Lifecycle Costs• May Be Tied to Product or Relationship• Includes Costs Before & After Use• May Include Hard Cost & Soft Cost• Includes Allocation of Risk• Purchase Price is a Small Part of TCO




TCO Basic

• Begins With Requirement Specification• Elements Are Identified Pre-RFP• Vendors Add TCO Consideration Points

Via Bids & Questions• TCO Elements Are Prioritized• Best-TCO Drives Offer Selection




TCO Advanced

• Begins Earlier, Ends Later (Supply Chain)• Relationship Aspects of TCO

– Long Term View, Trusted Advisor– Finding Mutual Benefit– Getting Beyond Low-Bid Mentality

• Cascade TCO– Similar Products, Commonality of Support– Synergies Between Vendors & Projects




TCO Driving Requirements

• Defects = Failure to Conform to Requirements

• TCO Analysis Drives Requirements

• Ensure Requirements Selected Really Lower TCO

TCO Elements

• Define / Buy

• Maintain

• Relocate

• Fallbacks

• Implement

• Infrastructure

• Secure & Insure

• Upgrade

• Replace

• Handoff & Dispose




TCO in Processes | Procurement

• Consider Procurement– Time– Infrastructure– Experts– Overhead– Missed Opportunities– Relationship Impact– Credibility Impact

• Dispute & Breach– Frequency– Process

• Know the Total Cost of the Procurement Process– Direct Process Costs– Methods & Tasks– Reviews/Approvals– Inspection & Acceptance– Risk Tradeoffs– Hard & Soft Costs– Staff Satisfaction– Internal Customer

Satisfaction– Vendor Relationship Quality




TCO in Processes | Sales

• Consider TCO/TCS In Bid / No-bid• Costly Buy Process = High Admin Cost?• Buyers Who Refuse To Discuss

Lowering TCO May Not Be Good Customers

• Interpret Buyer Behavior• Consider How Buyers Define & Manage

Quality When Deciding Whether to Bid




Quality

• What is Quality?• Using Quality to Reduce Risk• Preventing Contract Failure Due to

Quality




What is Quality?

• Defining Quality for Contracts• Understanding the System to Ensure

Quality• What Performance Standard to Use

• Measuring Results




Defining Quality

• Quality is a Noun, Not an Adjective• Quality = Conformance to

Requirements




Requirements

• Determining Requirements• Desired, Needed, and Mandated

Characteristics.




Requirements

• Business Objectives• Understanding all the Requirements

– Deliverables– Schedules– Financials




Requirements

• Clear & Understood Requirements - The Real Basis for the Contract




Ensuring Quality

• Prevention vs. Correction




Performance Standards

• Assumed or Explicit• “That’s Close Enough” vs. “Zero

Defects”




Measurement of Results

• Choosing the Right Measures• What to Measure in Contacts• The Cost of Not Meeting Requirements




Using Quality to Reduce Risk

• Determining the Right Requirements• Agreeing on Performance Standards• Using Appropriate Measurements




Preventing Failure Due to Quality

• Focusing on Preventing the Breach vs. Correcting the Breach




Examples




Example: Soaring Cost to Buy/Sell

• State Governor Brought in Experts– Added $2M to Procurement Cost

• Experts Used Commercial Practices– Did Not Anticipate Regulatory Burdens

• Resulting Bid Process Absorbed All Potential Profit from the Deal– Winner Needed to “Get Well on the Changes”

• Result: TCO Moderate, Quality Poor




Example: Quality Overkill

• Past Quality Failures• Therefore, Quality Drove Procurement

– Quality Defined Independent from Requirement– Stellar Quality Demanded on Commodities– “No Price Too High” For Top Quality

• Result: TCO Very High, Quality High– Frustration from End-Buyers & Sellers– Long Acceptance, Late Deliveries




Example: Triangulating Done Right

• Solid Buyer/Seller Relationships• TCO Stacks & Necessary Quality Defined

During Requirement Stage• Prospective Vendors Consulted Pre-RFP• RFP Criteria = Low TCO, Necessary Quality• Buyer & Winning Bidder Formed Relationship• Both Sides Considered Reasonable Long

Term TCO & Quality as Success Indicators




Thank You, Questions?

[email protected]@GMail.com

Documents

April 1012, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing,