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TitleValue Management governance & project selection at Philips Lighting
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Value Management
governance & project

selection at Philips Lighting
A purchasing perspective



Thomas Jansen

9/20/2010

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Value Management governance and project selection at Philips Lighting

A purchasing perspective

















Philips Lighting

Eindhoven, 31-08-2010

Twente University

Enschede, 20-09-2010







Author:

Thomas Jansen

Industrial Engineering & Management

Twente University

Supervisors

Dhr. R.F.H.H. Reumkens (Philips Lighting)

Mr. J.I.H. Buter (Twente University)

Prof. Dr. H. Schiele (Twente University)

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First, the expert candidates are nominated by value management business leaders. The candidates are entered on

a waitlist for value management training. The value management team will advise on a minimum level of balance

of candidates between functions. Value management training takes place in the second phase. A three days

training will cover value management analytical tools and at least three tools are practiced on real-life projects. In

order to graduate as a level 1 expert full participation is needed and the participant should understand the value

management formats and language used in Philips which is confirmed by the trainer. The third phase consists of a

level two graduation project. The value management expert is expected to coach projects of colleagues in other

business groups or developments teams. Besides that, the expert will use its knowledge and skills in its own

projects. In order to graduate as a level two expert he or she has to submit a short summery of a project, including

illustration of technical impact and a savings estimation. This will be reviewed by a Philips value management

coach that decides whether it is sufficient to be called a level 2 expert. Level 2 is the generally desired target status

of experts. For those people that are interested in a career as (full time) value management coach a fourth

development phase can take place. In this process a value management expert has to build up experience in many

projects and coach other level 1 experts in the organisation in the last phase. The entire value management tool

set should be applied in many and/or large projects. The impact and result of value management workshops and

case stories should be tracked. The level 2 value management experts are coached personally by a Philips value

management coach. An in depth individual review will be conducted by a Philips value management coach to

become a level 3 value management expert.

At the beginning of 2010 more than 200 value management experts have been trained Philips-wide (Philips N.V.,

2010). Only a small share of these experts (about 7%) is working in the Lighting sector (Figure 17). This is mainly

due to the fact that the introduction of value management in the sector Lighting has been taken place later than

the other sectors.



FIGURE 17: NUMBER OF VALUE MANAGEMENT EXPERTS BY SECTOR AT THE END OF THE MONTH (SOURCE: PHILIPS N.V., 2010)

3.1.3.2. VALUE MANAGEMENT TOOLS FOR BASIC COST REDUCTION, FUNCTIONAL

SPECIFICATION & PERFORMANCE SPECIFICATION

Philips uses a set of eight systematic tools and approaches that structure idea generation, or that may help

uncover savings or assist communication and decision making (Philips N.V., 2010). Three types of tools are

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distinguished: tools for cost reduction, functional specification and performance specification (Table 7). Additional

approaches will be developed over time and made available among value management experts and can be used in

future trainings.

Category Tool Description

Cost reduction Design for manufacturing and
assembly

Systematic product optimization
working line by line in the BOM.
Useful in all situations, including
supplier workshops

Cost models Simple cost estimation tools used
to understand cost drivers, make
good concept choices, or set tight
procurement targets

Product teardown (reverse
engineering)

The systematic disassembly,
comparison and analysis of own
and competitor products

Value chain mapping A powerful visualization of an
entire value chain at a single
glance that allows to optimize
entire product families

Functional specification Value analysis An industry standard method to
analyze and compare product cost
by function, rather than per part

Concept scoping A systematic matching of product
features, architecture and cost to
maximize margin, done by R&D
and marketing

Voice of customer tree A scheme that logically links a

specifications, enabling strong and
targeted positioning

Performance specification Spider map A comparison of product
performance specification to
competitors, used to reduce over
specification

System parameter optimization System optimization with a
particular focus on cost driving
parameters and the questioning of
long-standing assumptions

TABLE 7: VALUE MANAGEMENT TOOLS (SOURCE: PHILIPS N.V., 2010)

Concept scoping and system parameter optimization are regarded to be important tools for Philips Lighting

because the first one combines the marketing and R&D point of view and the second one is powerful in comparing

different system parameters like power supply and light output. These methods has led to the most significant

saving opportunities for the Lighting sector in value management workshops according to the Philips value

engineering Coach (Seiler, 2010).



3.1.4. VALUE MANAGEMENT PROCESS AT PHILIPS: PREPARATION, WORKSHOP & FOLLOW-UP

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APPENDIX H: RECOMMENDED VALUE MANAGEMENT ORGANISATION

STRUCTURE


SOURCE: OWN ILLUSTRATION

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APPENDIX I: TABLE OF FIGURES
Figure 1: Organisation Chart Philips Lighting (source: Philips Lighting, 2010) ...................................................... 11

Figure 2: Organisation chart Philips corporate purchasing (own illustration) ...................................................... 11

Figure 3: Monczka’s purchasing strategy and purchasing process model as used at Philips (source: Philips N.V.

Intranet, 2010) ...................................................................................................................................................... 12

Figure 4: Research framework (own illustration).................................................................................................. 15

Figure 5: Literature review process (Own illustration) ......................................................................................... 17

Figure 6: Value management general job plan/process based on literature review (see Appendix A) ................ 21

Figure 7: Conceptual model of the process of value management (own illustration) .......................................... 23

Figure 8: Procurement wheel (Source: Buter & Loa, 2008) .................................................................................. 25

Figure 9: A simplefied feedback control model (source: Daft, 2004) ................................................................... 29

Figure 10: Simplefied pattern of VM studies (source: Shen & Liu, 2003) ............................................................. 31

Figure 11: Conceptual model of value management process and governance (own illustration) ....................... 36

Figure 12: Priority matrix for project selection (source: Monroe & Cox, 2004) .................................................... 40

Figure 13: Value opportunity potential project selection grid (source: Kaufman, 1993) ..................................... 41

Figure 14: Conceptual model of the project selection process (own illustration) ................................................ 43

Figure 15: Theoretical framework of a value management program (own illustration) ...................................... 45

Figure 16: Value management expert develpment path (source: Philips Lighting, 2010) .................................... 47

Figure 17: Number of value management experts by sector at the end of the month (source: Philips N.V., 2010)

.............................................................................................................................................................................. 48

Figure 18: Conceptual model of the process of value management (own illustration) ........................................ 51

Figure 19: Value management process at Philips Lighting (own illustration) ....................................................... 51

Figure 20: Lighting purchasing roles (source: Philips Lighting, 2010) ................................................................... 52

Figure 21: Monczka’s purchasing strategy and purchasing process model as used at Philips (Source: Philips

supply management, 2010) .................................................................................................................................. 53

Figure 22: Purchasing process (Source: Philips supply management, 2010) ........................................................ 53

Figure 23: Global Lighting business process management system (source: Philips Lighting, 2010) ..................... 55

Figure 24: Value management governance at Philips Lighting (own illustration) ................................................. 60

Figure 25: Conceptual model of value management governance (own illustration) ............................................ 61

Figure 26: Model of the current project selection practice at Philips Lighting (own illustration) ........................ 64

Figure 27: Theoretical model of the project selection process (own illustration) ................................................ 64

Figure 28: Framework of current value management practice at Philips Lighting (own illustration) ................... 67

Figure 29: Theoretical framework of a value management program (own illustration) ...................................... 68

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