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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 8 TCO Driving Requirements Defects = Failure to Conform to Requirements TCO Analysis Drives Requirements Ensure Requirements Selected Really Lower TCO TCO Elements Define / Buy Maintain Relocate Fallbacks Implement Infrastructure Secure & Insure Upgrade Replace Handoff & Dispose

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 9 TCO in Processes | Procurement 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 14 Requirements Determining Requirements Desired, Needed, and Mandated Characteristics.

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 17 Ensuring Quality Prevention vs. Correction

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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”

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 22 Examples

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA 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

April 10–12, 2006 Hyatt Regency Atlanta Atlanta, GA NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management 26 Thank You, Questions?