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| Getting Started |
| The Steps for Measuring the Value Added |
1. Identify the value added opportunities
that exist for reducing the customer's total cost. This
can be done by either company independently, but one of
the most effective methods involves bringing the customer
and supplier together to identify the opportunities from
both companies' perspective. For customers, this is the
start of commodity/service planning. Each commodity/service
group will have some shared opportunities, but also some
that are unique to those goods or services. For the supplier,
this signifies the start of the development of a unique
selling proposition
2. Determine where the supplier is impacting the customer's
costs. Each opportunity has the potential to impact a
different set of costs. The use of the Impact Diagram
(shown later) can help focus the user on specific cost
areas and identifies the specific costs impacted. Companies
that create an impact diagram for each event (such as
energy audits, vendor managed inventory, summary bill,
etc.) need only do the exercise one time for each opportunity.
The impact diagram becomes a template for use each time
a similar event occurs, thus allowing future events to
be measured and evaluated much more quickly.
3. Measure the reduction in the Total Cost of Ownership
(TCO) resulting from the points impacted. Worksheets for
each of the six TCO categories can be utilized for measuring
the dollar impact a supplier has on the customer's profits.
These worksheets require that specific data be collected
in order to measure the impact. The majority of the information
required should be readily available, once the person
measuring the event knows what to look for.
4. Report the results and compare them with price and
performance to create a total cost comparison. Both the
customer and the supplier need to see the total cost impact.
Suppliers need this information to be able to sell on
a total cost basis and justify why the customer may have
to pay a higher per unit price in order to save on total
cost. For the customer, the reasoning is similar. They
need to be able to compare the total cost of doing business
with one supplier against the total cost of doing business
with other suppliers. This is not unlike how companies
compare suppliers on a price basis today. |
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