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AVA Consulting Partners believe there is a generational opportunity to take advantage of quantum global economic changes in the global supply footprint (GSF). There has been a generational redefinition in the GSF for almost all manufacturing. The GSF for manufacturing has been redefined with a large shift from Western Europe and US to China and Asia over the last 15 years. This shift has manifested predominantly from the diverse and significant investments in Asia to build manufacturing facilities and provide high quality manufacturing capability development programs driven by the Germany, France and Italy. This manufacturing capability investment has not only been in consumer products, but also heavy industrial products. The key benefit of the redefinition of the GSF has been the impact of reducing the TCO1 of most manufactured items by as much as 50% over traditional European and US based OEMs. These TCO reductions have been driven by 3 factors dominant in the emerging economies: a) World class capital efficiency; b) Labour market arbitrage and; c) Labour productivity benchmarks.
1 TCO: Total Cost of Ownership an approach that totals all cost elements from item inception through to disposal. 2
Any
company
can
immediately
take
advantage
of
the
redefined
GSF
for
all
of
its
major
capital
asset
designs
and
acquisitions
including
major
capital
equipment.
The
impact
of
design
on
the
TCO
of
a
capital
asset
is
often
discussed
but
rarely
addressed
in
a
capital
effective
manner.
Recently,
many
capital- intensive
industries
have
applied
Design
For
Value
(DFV)
techniques
with
more
transparent
suppliers
in
the
new
GSF
that
apply
a
mindset
of
developing
designs
to
meet
a
need
rather
than
a
want.
Not
surprising
there
have
been
examples
where
such
techniques
have
been
applied
have
delivered
reduction
of
15%
to
35%
in
the
purchase
price
and
ongoing
spare
parts
costs.
Recently
work
at
a
major
rail
corporation
on
wagons
revealed
DFV
savings
of
23%
by
reviewing
design
and
material
specification
of
both
of
the
bogie
and
body.
The
sourcing
from
the
redefined
GSF
can
be
successful
using
a
traditional
RFx
approach,
however
to
obtain
sustainable
reliable
lower
cost
items
with
a
minimal
increase
in
risk
it
is
highly
advisable
to
combine
procurement
from
the
GSF
with
a
clean
sheet
fact
based
(CSFB)
sourcing
approach.
This
will
ensure
that
in
this
brave
new
world
of
sourcing
that
there
is
as
much
transparency
of
what
a
capital
item
should
cost.
By
understanding
all
factors
at
a
very
detailed
level
the
buyer
can
turn
the
table
on
suppliers
in
any
negotiation,
especially
in
the
procurement
of
highly
complex
capital
items.
Recently,
we
have
seen
this
deliver
45%
savings
in
the
acquisition
price
of
heavy
mobile
equipment
for
an
Australian
large
mining
company.
3
The challenge with spare parts acquisition has typically been the complete lack of transparency on OEM parts cost make-up and the inability to utilise non-OEM without voiding warranty. With the advent of new suppliers in developing countries there is a significantly higher degree of transparency of cost drivers and openness to entertain discussion around cost. As in the case of initial acquisition there is significant savings to be made on both OEM and non-OEM spare parts by use of sourcing from the GSF combined with a CSFB approach to sourcing. Work done recently in the oil and gas industry recently using this technique has produced average savings of 28%. All companies can capture cash on offer from design, purchase price and spare parts by tapping into the redefined GSF combined with CSFB sourcing process.
Mario is considered an expert in Procurement, Supply Chain and Capital Efficiency practices with 21 years of experience as a consultant and corporate executive in many industry sectors. Mario worked for 5 years at McKinsey&Coy in Chicago, Asia and ANZ in the strategy and operations areas. In Chicago at McKinsey, Mario led a global initiative to drive best practice fact based procurement capability building in clients. Recently, Mario has also held CPO roles based in Shanghai (BlueScope Steel) and Australia (QRNational) in addition to senior operational roles at Fosters Brewing and General Motors. Recently Mario developed the CSFB (Clean Sheet Fact Based) negotiation workshop approach to strategic sourcing.
Copyright AVA Consulting Partners 2012 This discussion paper contains a variety of copyright material. No material anywhere in this discussion paper may be copied (except as legally allowed for private use) or further disseminated without the express and written permission of the legal holder of that copyright. Copyright AVA Consulting Partners 2012 Disclaimer While AVA Consulting Partners has attempted to make the information in this discussion paper as accurate as possible, the information contained in this discussion paper is for personal use only and is provided in good faith without any express or implied warranty. There is no guarantee given as to the accuracy or currency of any individual item in this discussion paper. AVA Consulting Partners do not accept responsibility for any loss or damage occasioned by use of the information contained in this discussion paper and all use is at the risk of the user
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