Breakout Session #208 Wayne Kost, VP, Global Supply Management, Inc.

2. TriangulatingTCO, Quality, Contracting Breakout Session #208 Wayne Kost, VP, Global Supply Management, Inc. Stephen Sopko, CEO, Cedar Key Ventures, LLC Wednesday, April 12, 2006 10:45 – 11:45 AM NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

3. Blending TCO, Quality and Contracts • Foundation • Process • Benefits • Application to Actual Scenarios NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

4. Total Cost of Ownership | Overview • Defined • Basic Implementation • Advanced Implementation • Using TCO to Define Requirements • Using TCO to Assess Processes • Procurement • Sales NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

5. TCO Defined • Total Cost of Ownership • Tough to Define, Situational • Includes All Lifecycle Costs • May Be Tied to Product or Relationship • Includes Costs Before & After Use • May Include Hard Cost & Soft Cost • Includes Allocation of Risk • Purchase Price is a Small Part of TCO NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

6. TCO Basic • Begins With Requirement Specification • Elements Are Identified Pre-RFP • Vendors Add TCO Consideration Points Via Bids & Questions • TCO Elements Are Prioritized • Best-TCO Drives Offer Selection NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

7. TCO Advanced • Begins Earlier, Ends Later (Supply Chain) • Relationship Aspects of TCO • Long Term View, Trusted Advisor • Finding Mutual Benefit • Getting Beyond Low-Bid Mentality • Cascade TCO • Similar Products, Commonality of Support • Synergies Between Vendors & Projects NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

8. TCO Driving Requirements • TCO Elements • Define / Buy • Maintain • Relocate • Fallbacks • Implement • Infrastructure • Secure & Insure • Upgrade • Replace • Handoff & Dispose • Defects = Failure to Conform to Requirements • TCO Analysis Drives Requirements • Ensure Requirements Selected Really Lower TCO NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

9. Consider Procurement Time Infrastructure Experts Overhead Missed Opportunities Relationship Impact Credibility Impact Dispute & Breach Frequency Process Know the Total Cost of the Procurement Process Direct Process Costs Methods & Tasks Reviews/Approvals Inspection & Acceptance Risk Tradeoffs Hard & Soft Costs Staff Satisfaction Internal Customer Satisfaction Vendor Relationship Quality TCO in Processes | Procurement NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

10. TCO in Processes | Sales • Consider TCO/TCS In Bid / No-bid • Costly Buy Process = High Admin Cost? • Buyers Who Refuse To Discuss Lowering TCO May Not Be Good Customers • Interpret Buyer Behavior • Consider How Buyers Define & Manage Quality When Deciding Whether to Bid NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

11. Quality • What is Quality? • Using Quality to Reduce Risk • Preventing Contract Failure Due to Quality NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

12. What is Quality? • Defining Quality for Contracts • Understanding the System to Ensure Quality • What Performance Standard to Use • Measuring Results NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

13. Defining Quality • Quality is a Noun, Not an Adjective • Quality = Conformance to Requirements NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

14. Requirements • Determining Requirements • Desired, Needed, and Mandated Characteristics. NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

15. Requirements • Business Objectives • Understanding all the Requirements • Deliverables • Schedules • Financials NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

16. Requirements • Clear & Understood Requirements - The Real Basis for the Contract NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

17. Ensuring Quality • Prevention vs. Correction NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

18. Performance Standards • Assumed or Explicit • “That’s Close Enough” vs. “Zero Defects” NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

19. Measurement of Results • Choosing the Right Measures • What to Measure in Contacts • The Cost of Not Meeting Requirements NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. Using Quality to Reduce Risk • Determining the Right Requirements • Agreeing on Performance Standards • Using Appropriate Measurements NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Preventing Failure Due to Quality • Focusing on Preventing the Breach vs. Correcting the Breach NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

22. Examples NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

23. Example: Soaring Cost to Buy/Sell • State Governor Brought in Experts • Added $2M to Procurement Cost • Experts Used Commercial Practices • Did Not Anticipate Regulatory Burdens • Resulting Bid Process Absorbed All Potential Profit from the Deal • Winner Needed to “Get Well on the Changes” • Result: TCO Moderate, Quality Poor NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

24. Example: Quality Overkill • Past Quality Failures • Therefore, Quality Drove Procurement • Quality Defined Independent from Requirement • Stellar Quality Demanded on Commodities • “No Price Too High” For Top Quality • Result: TCO Very High, Quality High • Frustration from End-Buyers & Sellers • Long Acceptance, Late Deliveries NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

25. Example: Triangulating Done Right • Solid Buyer/Seller Relationships • TCO Stacks & Necessary Quality Defined During Requirement Stage • Prospective Vendors Consulted Pre-RFP • RFP Criteria = Low TCO, Necessary Quality • Buyer & Winning Bidder Formed Relationship • Both Sides Considered Reasonable Long Term TCO & Quality as Success Indicators NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

26. Thank You, Questions? wkost@globalsupplymanagement.com StephenSopko@GMail.com NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management