NLPP Method (English)
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Transcript of NLPP Method (English)
Non-LinearPerformance Pricing
(NLPP)
The smart price analysis solution
THE SAPHIRION MISSION:OUR CLIENTS MAKE OPTIMAL GAINS FROM THE DEEPEST POSSIBLE INSIGHTS INTO THEIR DATA.
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NLPP analyzes all kind of product prices according to customer value / benefit / performance and shows you immediately which products or services have a good or bad price / performance ratio.
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For an NLPP analysis, the performance / value of the products is specified by the features & characteristics important for the user.
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Number of Cylinders
Power
Capacity
Life time mileage
Charging Time
Capacity
Volume
Voltage
Weight
Life Time
Volume Efficiency
Part Design
Number of Parts
Weight
Torque
Max. Revolution
NLPP uses the magic of mathematics in order to find out how selected product properties influence the price and comes up with a target price formula using those selected properties.
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Charging Time
Capacity
Volume
Voltage
Weight
Life Time
Volume Efficiency
Part Design
Any sufficiently advanced technology is indistinguishable from magic.-- Arthur C. Clarke, (1917–2008), English science fiction writer
NLPP benchmarks prices by customer value and performance, hence shifts the focus from a “discussion about costs” to a “discussion about value”.
ManufacturerPricing is resource driven and
based on cost-calculation(Cost of Production)
PurchasingSeeks for parts with specific functions and properties with the best price performance ratio.
Cost ⇾ Value(NLPP)
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NLPP calculates prices by customer value and performance, hence shifts the focus from a “discussion about pirce” to a “discussion about value”.
CustomerPrices are consistent with the performance and comparable
SalesArgues with benefits and uses consistent price-performance ratio
Value ⇽ Price(NLPP)
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Engineering(NLPP)Evaluation of alternatives while maximizing customer value at
optimal costs
Since NLPP evaluates performance changes in monetary terms, your engineering perspective expands to include market and customer information for optimal product design.
Market Information(NLPP)
Customer Information(NLPP)
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NLPP thus connects purchasing, engineering and sales through a uniform method which quickly and accurately assesses the value of prices & costs.
PurchasingBenchmarks, potential savings,
relocation, price consistency
EngineeringPrice estimates, similar parts,
cause effect relationships
SalesValue based argumentation,
consistent pricing
Which productshave potentialsavings and
how big are these?
What is a justified price for a new specification?
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The „magic“ about NLPP is that it finds the best price predicting formula using your data and calculates the target price for every part number.
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Price Driver, Quantity Target Price
Price PredictingFormula
Price Driver, Quantity &
Actual Price NLPP
€ = p0+p1x1+p2x2
€ = p0+p1x1+p2x2
NLPP calculates three price benchmarks from your data and shows which products aremore expensive (above benchmark line) or cheaper (below benchmark line) than the benchmark.
Worst-Practice25% more expensive / 75% cheaper
Target50% more expensive / 50% cheaper
Best-Practice75% more expensive / 25% cheaper
25%
75%
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Regression methods provide reliable results only if their mathematical pre-conditions are fulfilled and the method correctly capture the structure of the input data.
Only models that capture
the structure of the input
data and extract as much
information as possible
give reliable and usable
results.
It is easy to calculate many different regression models which do not capture the structure of the input data, but still calculate an (unreliable and incorrect) result for each part number.
Only correct "performance pricing models" can represent the product preferences (defined by the selection of the performance drivers) and the market situation (part numbers with parameters, quantity and price).
The methods used must extract the maximum amount of information from the input data (gain of knowledge) in order to calculate a result model with the best possible predicting power.
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Depending on your input data NLPP automatically selects the regression method & price drivers that gain most information from your input data for the best possible price predicting model.
High
Low High
Ro
bu
stn
ess
Accuracy
LPP-QR
LPP-LSM
NLPP-QR
NLPP-LSM
High data requirements & conditions
Outliers have big negative impact on result
Negative target prices possible
No math requirements on input data
Outliers don’t impact the results negatively
Negative target prices possible
No math requirements on input data
Outliers don’t impact the results negatively
Always positive target prices
High data requirements & conditions
Outliers have big impact on result
Always positive target prices
LPP-CR NLPP-CR
linear non-linear
No math requirements on input data
Outliers are handled
Negative target prices much less likely
No math requirements on input data
Outliers are handled
Always positive target prices
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NLPP’s unique & advanced calculation methods are necessary in 96% of all real life cases to get the best analysis results. The simple & common LPP-LSM approach only applies to 4% of all cases.
4%6%
21%
14%37%
18%
Distribution of “Best Method”
LPP-LSM LPP-QR LPP-CR
NLPP-LSM NLPP-QR NLPP-CR
Base: 107 data sets from different industries for different part groups
NLPP-QR method (37%) has more share than all LPP methods (31%) together
In the LPP cases, LPP-CR has a significant higher share then any other LPP method
The “normal” LPP-LSM method is only the best method in 4% of all cases, in 96% of all cases, one of NLPP’s unique advanced calculation methods gives a better predicting model
Notes
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A statement like "LPP-LSM may not give a perfect result, but still good enough" leads to the use of unrealistic results and puts operational purchasing at a high risk.
Unrealistic models
calculate random target
prices and therefore also
random potentials
savings.
96% chance that LPP-LSM models are unrealistic.
An LPP-LSM would be significantly more unrealistic (≧ 20,000 times) in almost all cases than the best NLPP model.
Results calculated with unrealistic models have random characteristics and weigh the user in false security.
An unrealistic model uses only a fraction of the information contained in the input data.
Good Input ⇾ Bad Output
„If all you have is a hammer, everything looks like a nail“
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To find potential savings and to calculate price predictions NLPP offers many advantages compared with other methods.
NLPPCost analysis /
Cost structure analysis
FocusFocuses at the price
in proportion to customer valueTries to understand
the costs of the supplier
DataUses the data treasure of
many different partsConcentrates upon few part numbers
TimeResults for thousands of part numbers
are quickly available and useableApproach doesn’t scale for
many part numbers
InformationUses clearly defined & measureable
properties of parts that don’t lead to any discussions with suppliers
Makes assumptions of parameters that mostly lead to discussions
with suppliers
RobustnessGives stable and robust results with
already few and not perfect dataThe value of one parameter can strongly
influence the calculated costs / prices
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The NLPP workflow consists of a few simple steps. As result NLPP presents new evidence from your pricing and product information.
Use NLPP's analysisfunctions to drill down into your data and see what you've been missing.
Use the result to develop and effectively implement your purchasing strategy, negotiation tactics etc.
NLPP calculates the best formula in a couple of seconds and uses it to calculate target prices for all records
Import your data into NLPP and define the price drivers NLPPshould use for calculation
Compile the properties of your products which you expect to influence the price in an XLS sheet.
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With the Saphirion “Data extraction service”, we take care about the first step, so that your data quickly becomes an immediately usable NLPP model.
Ready to use NLPPmo
del
Different
Datasources
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NLPP application overview / data handling
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Records
Cluster
Workflow
NLPP application overview / result analysis
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Benchmark Potentials
Detailed Results
Interactive Graph
Your NLPP license consists of software, training and documentation. On top it covers unlimited personal access to our team of experts.
Personal access to ourNLPP expert team
Software
Training
Documentation
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NLPP’s power is best experienced in a real life environment where it can show and deliver its true value in a very short timeframe.
NLPPLife Presentation
Free NLPPDemo Analysis
NLPPPilot-Analysis
Remote / On Site
Duration 1h – 3h depending on audience size
You collect 15 – 20 records of any part group you are interested in
We do a life NLPP analysis ofyour data
We interpret the results
You get the results either as XLS export or together with a special NLPP version, enabling you to work with the analyzed data set
Remote / On Site
Duration 1h
We show you the NLPPworkflow, from data import to result
We answer all your questions
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NLPPPilot-Phase
NLPPRoll-Out
Saphirion AGAn der Lorze 9CH - 6300 [email protected]: +41 41 55 20 21 1F: +41 41 55 20 21 2
http://www.saphirion.comhttp://www.nlpp.ch
Saphirion, the Saphirion logo and NLPP are registered trademarks.