View a presentation about our Vendor Price Reduction process

1. Presentation
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Copyright 2012
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2. Parry Murphy and Associates Cost Reduction Specialists
Overview
Executive 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.
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3. Parry, Murphy and Associates Cost Reduction
Specialists
Executive Summary
 We help clients reduce the  Fees are based on % of
amount that they pay for first year’s actual savings.
items such as (sample  Vendor retention is a high
only): priority.
 Raw Materials
 Purchased  Relationships with
Parts/Components vendors improve in vast
 Sub-Contractors majority of cases.
 Outside Services
 Client controls process.
 Temporary Labor Charges
 Capital Expenditures  Fast results.
 Property Leases
 SG&A Expenses  Client calculates savings.
 etc.
Price reductions typically 5-20%
Reductions achieved, on average, from 80% of targeted vendors.
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4. Parry Murphy and Associates Cost Reduction Specialists
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. 4

5. Parry Murphy and Associates Cost Reduction Specialists
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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6. Parry Murphy and Associates Cost Reduction Specialists
Critical Elements of PMA’s Process
 Client 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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7. Parry Murphy and Associates Cost Reduction Specialists
Highlights of the PMA Process
Gathering 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.
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8. Parry Murphy and Associates Cost Reduction Specialists
Fee Options
 Four 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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9. Fee Options Matrix
Effective Fee % Based On Savings of
Fee % Retainer Threshold of $1 $2 $3.5 $5 $7.5
See Note 1 See Note 2 savings for $500,000 million million million million million
retainer to Savings Savings Savings Savings Savings Savings
become earned p.a. p.a. p.a. p.a. p.a. 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%
Note: 1. Effective fee % includes the earned retainer after achieving the savings threshold.
2. Retainer is refundable if savings threshold is not achieved.
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10. Parry Murphy and Associates Cost Reduction Specialists
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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11. Typical Client Employee Incentive Program – Based on 35% Fee
Savings $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 5% $ 8,750 $ 17,500 $ 35,000 $ 61,250 $ 87,500 $ 131,250
PMA (on fee)
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 $ 291,250 $ 607,500 $ 1,240,000 $ 2,188,750 $ 3,137,500 $ 4,718,750
after Match – Yr 1 58.3% 60.8% 62.0% 62.5% 62.8% 62.9%
Client Net Savings 100% $½ million $ 1 million $ 2 million $ 3.5 million $ 5 million $ 7.5 million
thereafter
Value Creation 6 x mult $3 million $6 million $12 million $21 million $30 million $45 million
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12. Parry Murphy and Associates Cost Reduction Specialists
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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13. Michael Parry
mwp@parrymurphy.com
Office (616) 425-5383 ext 112
Web Address: www.parrymurphy.com
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