Cost Savings Presentation May 2012

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Parry Murphy and Associates Parry Murphy and Associates Cost Reduction SpecialistsCost Reduction Specialists

OverviewExecutive Summary.What Makes PMA Unique?Most Critical Key Success Factors.Critical Elements of PMA’s Process.Highlights of the Process.Costs & Incentive Plans.Summary.How to Arrange a Presentation or

Webinar.2

Parry, Murphy and Associates Cost Reduction Specialists

Executive SummaryWe help clients reduce

the amount that they pay for items such as (sample only):Raw MaterialsPurchased

Parts/ComponentsSub-ContractorsOutside ServicesTemporary Labor ChargesCapital ExpendituresProperty LeasesSG&A Expensesetc.

Fees are based on % of first year’s actual savings.

Vendor retention is a high priority.

Relationships with vendors improve in vast majority of cases.

Client controls process.

Fast results.

Client calculates savings.

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Price reductions typically 5-20%Reductions achieved, on average, from 80% of targeted vendors.


What makes PMA unique? Experience - knowledge and techniques that work in any

industry. Tools – extensive tools and databases to benchmark client’s

current supplier pricing. Expertise – analytical skills and proven price reduction models. Strategies – proven methods that are customized for each

client situation. Speed – price reductions typically obtained 14 days after

implementation of strategies (some as quickly as same day). Success – price reductions typically from over 80% of vendors,

on average from 5% to 20%. Global capability. Process allows for servicing clients

worldwide. Cost competitive – success fees range from 20% to 35% for 1

year versus industry norm of 50% per year for 3 years.

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The Most Critical Key Success Factors

It is imperative that “senior management” endorse this initiative.

Client selection of a senior manager to be the Project Manager or “CHAMPION” who has the authority to:Act as the primary interface between PMA and

the client.Approve ongoing negotiation strategies. Ensure client’s employees (liaisons between PMA

and vendors) support the process.A motivated client.

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Critical Elements of PMA’s ProcessClient approves the process each step of the way. Client can over rule any of PMA’s strategies.PMA does not communicate directly with vendors,

unless specifically authorized by the client.PMA guides the process to prevent the client from

getting backed into a corner.Vendor relationships improve by the end of the

process.Client does calculation of actual savings to determine

the fee to be paid to PMA.Every reasonable effort is made to retain existing

vendors. Any changes in vendor are totally within client’s control.

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Highlights of the PMA ProcessGathering data.Research.Analysis.Employee interviews.Review of information.Develop strategies.Client approval of strategies.Coach liaisons.Manage negotiation process from start to

finish.Ongoing Support. 7


Fee OptionsFour different success fee options are offered

ranging from 20% to 35%.The next slide shows the effective fee %, based on

annual savings of $500,000, $1 million, $2 million, $3.5 million, $5 million and $7.5 million respectively.

Each fee option has a different retainer and savings threshold amount. Should the threshold not be achieved, the retainer is refunded.

The 20% fee option applies to large organizations that have multiple subsidiaries.

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Fee Options Matrix

Effective

Fee % Based On Savings

of

Fee % See Note

1

RetainerSee Note 2

Threshold of savings for retainer to

become earned

$500,000

Savings p.a.

$1 millionSavings p.a.


$3.5 millionSavings p.a.


$7.5 millionSavings p.a.

35% $ 25,000 $ 100,000 40.0% 37.5% 36.3% 35.7% 35.5% 35.3%

30% $ 50,000 $ 250,000 40.0% 35.0% 32.5% 31.4% 31.0% 30.7%

25% $ 100,000

$ 500,000 45.0% 35.0% 30.0% 27.9% 27.0% 26.3%

20% $ 125,000

$ 600,000 20.0% 32.5% 26.3% 23.6% 22.5% 21.7%

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Note: 1. Effective fee % includes the earned retainer after achieving the savings threshold. 2. Retainer is refundable if savings threshold is not achieved.


Incentive Plans & Value Employee incentive plan highly recommended. How would this work?

PMA and client each contribute 5% of the success fee to an incentive plan fund.

Fund gets distributed to the key contributors - e.g. Champion, liaisons or employees in general.

The next slide reflects such an incentive plan, based on fees of 35%.

The Value Creation line in the next slide reflect the various full annual savings at a multiple of 6. You can use what ever multiple you wish.

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Typical Client Employee Incentive Program – Based on 35% FeeSavings $½ million $ 1

million$ 2

million$ 3.5

million$ 5

million$ 7,5

million

Fee 35% $ 175,000 $ 350,000

$ 700,000

$ 1,225,000

$ 1,750,000

$ 2,625,000

Incentive Fund

Contribution by PMA (on fee)

5% $ 8,750 $ 17,500

$ 35,000

$ 61,250

$ 87,500

$ 131,250

Client Match 5% $ 8,750 $ 17,500

$ 35,000

$ 61,250

$ 87,500

$ 131,250

$ 17,500 $ 35,000

$ 70,000

$ 122,500

$ 175,000

$ 262,500

Distribution

Champion TBD %

Employee 1 TBD%

Employee 2 TBD%

Employee 3 TBD%

Total Distributed

$ 17,500 $ 35,000

$ 70,000

$ 122,500

$ 175,000

$ 262,500

Client Net Savings after Match – Yr 1

$ 291,250 58.3%

$ 607,500 60.8%

$ 1,240,000 62.0%

$ 2,188,750 62.5%

$ 3,137,500 62.8%

$ 4,718,750 62.9%

Client Net Savings thereafter

100% $½ million $ 1 million $ 2 million $ 3.5 million

$ 5 million $ 7.5 million

Value Creation 6 x mult

$3 million $6 million $12 million $21 million $30 million $45 million

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Summary

Expertise in price reductions.

Speed - Quick results.

Methodology – Proven process.

Leverage that only an outsider can provide.

Incentive System – To motivate your team.

Catalyst – We drive the process.

Results - 80% success, average reductions = 5% - 20%.

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Michael [email protected]

Office (616) 425-5383 ext 112

Web Address: www.parrymurphy.com13

Cost Savings Presentation May 2012

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