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TheNewGlobalSupply

FootprintAGenerational

ChangeOpportunity

DiscussionPaper

April2012

MarioA.Adamo

LeadPrincipal

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Global Supply Footprint A Generational Change:

AVAConsultingPartnersbelievethereisagenerationalopportunityto

takeadvantageofquantumglobaleconomicchangesintheglobal

supplyfootprint(GSF).

TherehasbeenagenerationalredefinitionintheGSFforalmostall

manufacturing.TheGSFformanufacturinghasbeenredefinedwitha

largeshiftfromWesternEuropeandUStoChinaandAsiaoverthelast

15years.Thisshifthasmanifestedpredominantlyfromthediverseand

significantinvestmentsinAsiatobuildmanufacturingfacilitiesand

providehighqualitymanufacturingcapabilitydevelopmentprograms

drivenbytheGermany,FranceandItaly.

Thismanufacturingcapabilityinvestmenthasnotonlybeenin

consumerproducts,butalsoheavyindustrialproducts.Thekeybenefit

oftheredefinitionoftheGSFhasbeentheimpactofreducingtheTCO1

ofmostmanufactureditemsbyasmuchas50%overtraditional

EuropeanandUSbasedOEMs.TheseTCOreductionshavebeendriven

by3factorsdominantintheemergingeconomies:

a)Worldclasscapitalefficiency;

b)Labourmarketarbitrageand;

c)Labourproductivitybenchmarks.

1TCO:TotalCostofOwnershipanapproachthattotalsallcostelementsfromiteminceptionthroughtodisposal.

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AnycompanycanimmediatelytakeadvantageoftheredefinedGSFfor

allofitsmajorcapitalassetdesignsandacquisitionsincludingmajor

capitalequipment.

TheimpactofdesignontheTCOofacapitalassetisoftendiscussedbut

rarelyaddressedinacapitaleffectivemanner.Recently,manycapital-

intensiveindustrieshaveappliedDesignForValue(DFV)techniques

withmoretransparentsuppliersinthenewGSFthatapplyamindsetof

developingdesignstomeetaneedratherthanawant.Notsurprising

therehavebeenexampleswheresuchtechniqueshavebeenappliedhavedeliveredreductionof15%to35%inthepurchasepriceand

ongoingsparepartscosts.Recentlyworkatamajorrailcorporationon

wagonsrevealedDFVsavingsof23%byreviewingdesignandmaterial

specificationofbothofthebogieandbody.

ThesourcingfromtheredefinedGSFcanbesuccessfulusinga

traditionalRFxapproach,howevertoobtainsustainablereliablelower

costitemswithaminimalincreaseinriskitishighlyadvisableto

combineprocurementfromtheGSFwithacleansheetfactbased

(CSFB)sourcingapproach.Thiswillensurethatinthisbravenew

worldofsourcingthatthereisasmuchtransparencyofwhatacapital

itemshouldcost.Byunderstandingallfactorsataverydetailedlevel

thebuyercanturnthetableonsuppliersinanynegotiation,especially

intheprocurementofhighlycomplexcapitalitems.Recently,wehave

seenthisdeliver45%savingsintheacquisitionpriceofheavymobile

equipmentforanAustralianlargeminingcompany.

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Thechallengewithsparepartsacquisitionhastypicallybeenthe

completelackoftransparencyonOEMpartscostmake-upandthe

inabilitytoutilisenon-OEMwithoutvoidingwarranty.Withtheadvent

ofnewsuppliersindevelopingcountriesthereisasignificantlyhigher

degreeoftransparencyofcostdriversandopennesstoentertain

discussionaroundcost.Asinthecaseofinitialacquisitionthereis

significantsavingstobemadeonbothOEMandnon-OEMspareparts

byuseofsourcingfromtheGSFcombinedwithaCSFBapproachto

sourcing.Workdonerecentlyintheoilandgasindustryrecentlyusing

thistechniquehasproducedaveragesavingsof28%.Allcompaniescancapturecashonofferfromdesign,purchasepriceand

sparepartsbytappingintotheredefinedGSFcombinedwithCSFB

sourcingprocess.

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Abouttheauthor

Mario A. Adamo Lead Principal

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 2012This discussion paper contains a variety of copyright material. No material anywhere in

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that copyright. Copyright AVA Consulting Partners 2012

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