SUPPLY CHAIN MINDED

Not Just for Manufacturing: Value Analysis Takes Cost Out of Services Procurement

Not Just for Manufacturing: Value Analysis Takes Cost Out of Services Procurement

By Susan Avery, March 13, 2014, Mypurchasingcenter.com

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Thought it Couldn’t Be Done? In a presentation to supply management professionals attending a recent meeting of the Purchasing Management Association of Boston (PMAB), James Jordano, Managing Director at Profectus Management Advisory Group, demonstrated that value analysis techniques can be applied to services procurement to reduce cost.  

Adding “zest” to the title of his talk, Jordano said it could be renamed How to Save a Billion Dollars. His career includes supply management experience at United Technologies Corp., where the company’s UT500 program helped  reduce costs of non-production purchasing by $1.2 billion. He used examples from the program to deliver his message.

“A huge portion of that savings was generated by use of VA,” Jordano told the supply managers. He explained how VA differs from other techniques used to cut cost, saying, “Value analysis, according to Lawrence D. Miles who coined the term, is an organized approach which has as its purpose the efficient identification of unnecessary cost.”

Jordano clearly described the project-based approach he favors, including a thorough explanation of how to figure out the value and function of a product or service sourced by an organization. Forming standing cross functional teams whose objective is to come up with new ideas for approaching  categories of non-production, or indirect, procurement and strong executive sponsorship are keys to success in value analysis, he added.

His examples consisted of such spend categories as tax preparation. The team at UTC removed $700,000 in cost from a $1.4 million annual spend by expanding the supply base to include regional firms. He also showed that the team was able to reduce costs by $1 million on a $6 million spend on promotional items by creating an online catalog and streamlining the special order process. For a category of temporary help (engineering), the team cut cost by $13 million from the $24 million the organization was spending by creating a common set of contract terms and conditions, among other activities.

The March monthly member PMAB meeting took place at Partners Healthcare in Charlestown, Mass., which hosted and sponsored the event. Walter Robatzek, President, PMAB, welcomed the supply managers, procurement professionals and other attendees. Members had opportunity to network before and during dinner.

March is Purchasing and Supply Management month. Bernie Hennessey, Chair of the ISM Northeast Supply Management Group shared with supply management pros at the meeting a proclamation by Massachusetts Governor Deval Patrick. In his talk, Hennessey said that PMAB was founded in 1905. The association is preparing to commemorate its 110th year, beginning this May.

David Kriz, Managing Director at PMAB, delivered encouraging economic news, reporting that the PMAB Business Survey has shown positive growth for 13 consecutive months. “It appears the region has turned the corner,” Kriz said. Fifty PMAB members complete the survey each month.

A pre-dinner presentation by Jeffrey Keisler, Ph.D, Professor of Management Information Systems at UMass-Bostonweighed the advantages and disadvantages of using a single source, with the U.S. Department of Energy’s decision to outsource, or privatize, a production project as the backdrop.

In talking through his list that consisted of such factors as supplier capacity, economies of scale, and opportunity cost, he determined that sourcing from three or four suppliers is likely the most beneficial solution for the buyer.

For attending the meeting, supply management professionals earn 2.5 continuing education credits that can be used toward ISM CPSM recertification.

The next member meeting of the PMAB is Monday, April 14 at 5 pm at Cubist Pharmaceuticals in Lexington, Mass. Ariba is sponsoring the event.

The annual meeting of PMAB is Monday, May 19 at 5 pm at the Masonic Museum and Library in Lexington. W.B. Mason is sponsoring this event. Other sponsors of PMAB are: BravoSolution, Covidien, DPV Transportation, Hiperos, McInturff & Associates and the Minority Business Development Agency Business Center.

Upcoming educational sessions include a CPSM Examination 3: Effective Supply Management Leadership Review workshop May 8-9 at the PMAB office in Concord, Mass.

For information on joining PMAB or attending meetings and other events, contact Dave Kriz by phone (978) 371-2522 or email admin@pmaboston.org.

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