What does K-Vallo consist of?
K-Vallo consists of a Webmodule which holds all material specifications and all price formulas. The Webmodule delivers for every packaging item - using the respective price formula - a Setup Price, a Changeover Price and a Run-on Price. These three prices per packaging item are volume independent and independent of packaging items from the same packaging cluster which are eventually called-off together with the packaging item. Furthermore, K-Vallo has a SAP Module which calculates the Purchase Order Price using a specific order volume and minimizing the number of Setups clustering packaging items. The Webmodule and the SAP Module have an interface.
Why didn't you implement everything in SAP?
The Webmodule can be made accessible to the supplier. Like this, the supplier can calculate prices or perform data services for the buyer e.g. maintain material specifications. From our experience FMCGs are reluctant to grant access suppliers to their SAP systems.
Can K-Vallo also run without SAP?
Yes, you can run K-Vallo with any other ERP system or only with the K-Vallo Webmodule. In the latter case the K-Vallo Webmodule will calculate the purchase order price.
Do I need at all extra software for applying the K-Method?
No, you don't. The price formulas are normally simple and can also be run with Excel. The example in the book is entirely run in Excel. K-Vallo, however, will make your life easier, because administrating all prices, different price formula scenarios, and entering prices to the ERP system can be quite hefty work.
How does K-Vallo support me with tenders?
All quoted price formulas can be stored in K-Vallo. As a next step a volume/specification scenario can be defined or extracted from the ERP system. Total purchasing cost can be then calculated by applying the different price formulas. Normally, the supplier providing price formula prices leading to the lowest total annual spend will be granted the business.
Does K-Vallo support internal benchmarking?
Yes, it is technically the same as a tender. The volume/specification szenario from one region is calculated with the price formula of another region. Then actual spend is compared with the simulated spend to see, where the two regions are standing in comparission. The two regions may use packaging materials with total different specifications and different volumes. With the K-Method this doesn't matter.
And what about budgeting?
Budgeting for packaging procurement has typically two aspects. Firstly, new packaging items and different volumes can be stored in the planning szenario of K-Vallo. Then market trends can be predicted. For packaging materials this is typically the development of feedstock markets e.g. paper and plastic. Furthermore, specific elements of the price formula can be adjusted for the budgeting purpose. Then, K-Vallo will apply the feedstock market assumptions and the change of individual price formula elements to calculate new prices for every packaging item and then apply these new prices to the volume/specification scenario.
Why do you put so much emphasis on the purchasing variance analysis?
Firstly, the variance analysis is the only way to explain to the business what is happening in a purchasing category. This requires to split spend changes stemming from volume changes from spend variances stemming from price changes. Furthermore, the total price variance needs to be split into feedstock price variance, exchange rate variance and conversion variance. This needs to be done because feedstock markets and exchange rates are not under control of the supplier and therefore can't be effectively be negotiated by the buyer. The real performance of the buyer is reflected by the conversion variance, the part where the supplier converts a feedstock material to a packaging item.
Displaying the feedstock, exchange rate and conversion price variances will explain the biggest part of packaging price movements. These variances are automatically calculated by K-Vallo. This leaves for final perfection, splitting the conversion variance into a specification variance (different material code but same purpose), call-off variance (same annual volume but more call-offs) and net conversion variance (the actual conversion).
K-Vallo Web - Price Formulas
This demo shows how Price Formalas can be implemented with the K-Vallo Web Software. It also shows how prices can be automatically calculated and transferred to SAP.
K-Vallo SAP - Purchase Order
With the K-Vallo SAP Plug-in Info Records and Contracts can hold Setup, Changeover and Run-on prices. K-Vallo will then automatically calculate a purchase order price for every material item when there is
a material requirement. K-Vallo will ensure minimal number of Setups by grouping material items which belong to the same Format Group. Volumes can be changed individually, new prices for all material items of that Format Group will be automatically changed. A price change is required because changed volumes for a call-off will lead to a different distribution of the Setup price over the materials of a Format Group.
This video shows the functions of K-Vallo when doing Business Planning for Procurement, mainly for FMCG and Pharma. It shows how assumptions on currencies, feedstock markets, global commodity markets, negotiations with suppliers can be automatically translated to future buying prices. Furthermore,
K-Vallo offers a Variance Analysis tool which shows volume and price variances separately for suppliers, own plants, purchasing categories and even product categories. This allows not only to show the effect of market movements but also shows the impact to the business and its categories.
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