USER MANUAL
Version 1.0
Published in December 2004
Procurement Expert & Strategic Sourcing System
(PROXSYS)
Prepared by
Kentropy Technologies Pvt. Ltd.
No. 58, 2nd Main,
1st Block, Koramangala,
Bangalore – 560 034, India
Tel +91 80 57617368
www. kentropy.com
© 2004 Sudhi Seshadri All rights reserved.
2
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
All rights reseved. This manual contains proprietary information, which is protected by copyright.
Except for classroom purposes as governed by the purchase of the accompanying book, no part
of this document should be copied or reproduced by any means – graphic, electronic, or
mechanical including photocopying, recording, taping or in information storage or retrieval system
without the written permission of the author, Sudhi Seshadri. The information in this manual is
subject to change without notice and does not represent a commitment on the part of the author
or the publishers.
Document Version 1.0
Published in December, 2004
© 2004 Sudhi Seshadri All rights reserved.
3
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
ABOUT THIS MANUAL:
This manual provides the information on the usage of the Procurement Expert & Strategic
Sourcing System. Proper use of the system will ensure that all terms and conditions of business
process are in full compliance and exceptions are to be reported. This manual aims at assisting
the users of Proxsys to properly use the Procurement Expert & Strategic Sourcing System.
INTENDED AUDIENCES:
This document is intended for
• Users of the Proxsys Application
• Readers of the accompanying book on sourcing strategy.
© 2004 Sudhi Seshadri All rights reserved.
4
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
TABLE OF CONTENTS
Chapter 1 .............................................................................................................5
1.0
Introduction ................................................................................................5
1.1
Function Overview.....................................................................................5
Chapter 2 .............................................................................................................7
2.0
Home Page .................................................................................................7
Chapter 3 .............................................................................................................8
3.0
Sourcing Indexes .......................................................................................8
3.1
Risk Profile .................................................................................................8
3.2
Environment Indexes...............................................................................10
3.3
Price Quality Index...................................................................................12
Chapter 4 ...........................................................................................................14
4.0
Available Scenarios and Exercises ........................................................14
4.1
Fixed Price Contracts ..............................................................................14
4.2
Capacity Constraints Contracts .............................................................17
4.3
Syndicated Sourced Contracts...............................................................21
4.4
Equity Sharing Contracts ........................................................................23
4.5
Incentive Fee Contracts...........................................................................27
© 2004 Sudhi Seshadri All rights reserved.
5
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
Chapter 1
1.0
Introduction
The Procurement Expert & Strategic Sourcing System - Academic Version or
Proxsys® is a set of interlinked applications to support sourcing and supply base
design. The applications consist of key indexing wizards and exercises based on
design scenarios. The wizards are tools to aid computation procedures for key inputs
to
the
applications.
The
scenarios
contain
algorithms
and
mathematical
implementations of sourcing models described in the corresponding chapter of the
accompanying textbook, Sourcing Strategy: Principles, Policy and Design. In the
remainder of this Manual we introduce Proxsys® and briefly describe its more
important uses.
Proxsys® is accessed from the CD and is self launching. Alternatively, you can open
the folder with your browser and click on the start file. Click on the About Proxsys
button to ensure that you have the right technical specifications and appropriate
software to run the applications. Follow the instructions there to load the software, if
you do not.
1.1
Function Overview
Proxsys® assists you in designing efficient sourcing contracts if you are a buyer; and
in constructing competitive tenders if you are a vendor. As a RFQ tool, Proxsys®
provides a platform for buyers and sellers to jointly analyze various contracting
options, and jointly determine the parameters that best suit their sourcing objectives.
As a budgeting tool, Proxsys® allows sourcing managers and bidders alike to
balance their risk-reward tradeoffs. Matching the risks and rewards of sourcing
improves overall efficiency, and allows sourcing to come in under budget. Proxsys®
is supported with sourcing environment index engines or wizards, and executes
designs for different sourcing scenarios. As the strategic sourcing executive, you are
charged with developing the budgets for a variety of key sourcing contracts. Due
diligence is required on short run acquisition cost as well as the implications of any
initiatives on long run benefits of strategic sourcing.
© 2004 Sudhi Seshadri All rights reserved.
6
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Your responsibility for sourcing design is to:
(a) assess the overall risks and rewards from competitive multi-sourcing and balanced
budgets;
(b) link capacity utilization and pricing for multi source price management;
(c) create supplier syndicates with the best risk sharing advantages for complex
programs;
(d) determine work-in-progress payments and advance investments in a given supplier;
(e) devise the best incentive and risk sharing rules with independent suppliers.
© 2004 Sudhi Seshadri All rights reserved.
7
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
Chapter 2
2.0 Home Page
Main Screen:
Once user starts the Application, the home page appears as shown in Figure 1.
The user can work with the Sourcing Indexes, like Risk Profile, Environment
Indexes and the Price Quality Index; and the user can subsequently select the
Exercises (or modules) to work upon. Be sure to click on select scenario each
time to refresh each selection of an scenario.
Figure 1: Home page
Figure 2: Module/Exercise Selection
© 2004 Sudhi Seshadri All rights reserved.
8
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
Chapter 3
3.0
Sourcing Indexes
These include engines or wizards to calibrate the sourcing situation. Three key
wizards (or "Sourcerers") are available to you: Risk Profile, Environment Indexes,
and Price-Quality Indexes. They are each separately accessed from the Sourcing
Index panel by clicking on the link, and have their own Help support. Review the
Help support for each wizard before attempting to complete the Index entries.
The three wizards help determine the key indexes for the designs. The Risk
Profile wizard is an exercise that helps you determine your supplier's risk attitude,
which will influence the rewards it seeks from sourcing business. The
Environment Indexes wizard helps in measuring uncertainties and decision
options for the design scenarios from a common environment. The Price-Quality
Indexes wizard evaluates the vendors' offerings.
3.1
Risk Profile
The Risk Profile Wizard is accessed from the Sourcing Indexes panel. It allows
you (the buyer) to associate a risk profile with each supplier. Perhaps more
importantly it allows you to associate an average risk profile with the set of
vendors for an RFQ. This is useful in the design scenario, in order to tune the
contract form for risk-reward adjustments.
To create a Risk Profile:
1. Click on Risk Profile link in the Sourcing index panel. System opens an
interface to enter the five scenario details one by one as shown in Figure
3.
2. User saves each scenario details like Probability Percentage, Net
Operating Profit, Investment (in millions) and Profit Amount.
3. Finally, User sets the scale and clicks on the calculate button to calculate
the details like individual Risk Aversions etc. and the Average Risk
Aversion (Lambda) as shown in Figure 4.
© 2004 Sudhi Seshadri All rights reserved.
9
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 3: Risk Scenario Details Form
Figure 4: Risk Profile Output
© 2004 Sudhi Seshadri All rights reserved.
10
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
3.2
Environment Indexes
Four groups of indexes characterize the Environment Indexes: The market,
RFQ, selection and performance indexes. The Environment Indexes wiz has
the advantage of presenting a single environment that links all the indexes
for the five scenarios. You can calibrate the environment with the key
parameters for the auction and the contracting scenarios. You can then
examine the alternate decisions open to you as a sourcing manager in any
given
sourcing
environment
by
examining
the
scenarios
in
turn.
Enter Scenario Index Ranges
The prompting questions that you must answer provide the appropriate index
values. Based on your answers to these prompts the drop down menu for the
Scenario Indexes yields the necessary indexes for the design scenarios. The
wizard's engine calculates these index values with appropriate formulae. The
scenario indexes are automatically stored (only with minor variations in some
cases) in the corresponding exercise scenario. You are assured in this
manner that the various scenario designs are based on similar universal
environment indexes.
Scenario Index Report
The Environment Indexes provides Reports on the Index Values for the
various scenarios. To access the report click on View and make your
selection from the drop-down menu for the scenario index report.
It is important to click on View for the environment data to be saved and
automatically picked up in the Exercise scenarios.
To create a Environment Index:
1. Click on Environment Index link in the Sourcing index panel. System
opens an interface to enter the Scenario Index Ranges as shown in
Figure 5.
2. User modifies the input values in Scenario Index Values and clicks on
the saves button. System displays the Scenario Index Reports for all
modules as shown in Figure 5.
© 2004 Sudhi Seshadri All rights reserved.
11
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 5: Environment Indexes
© 2004 Sudhi Seshadri All rights reserved.
12
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
3.3
Price Quality Index
You (as the buyer) must evaluate the vendor's response to the RFI and the
RFQ. The Price-Quality Indexes that achieve this are accessed from the link
on the Environment Indexes panel.
The buyer initializes the number of suppliers that it will evaluate. Then it
determines the number of price and quality attributes necessary for its
evaluation.
To create a Price Quality Index:
1. Click on Price Quality Index link in the Sourcing index panel. System
opens an interface to enter the Price and Quality Attribute Details as
shown in Figure 6.
2. User chooses to save the Price and Quality Attribute Details entered.
System calculates the totals and the average for the attribute details
entered as shown in Figure 6.
3. User clicks on the view button. System displays the Price Quality Index
graph for the input Attribute Details as shown in Figure 7.
© 2004 Sudhi Seshadri All rights reserved.
13
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 6: Price - Quality Attributes
Figure 7: Price - Quality Indexes Graph
© 2004 Sudhi Seshadri All rights reserved.
14
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
Chapter 4
4.0
Available Scenarios and Exercises
The Exercise design scenarios describe standard sourcing strategies. Each
scenario is separately accessed from drop-down menus from the Select
Scenarios panel, and fully supported with help menus. The scenario leads to a
task that the sourcing executive must complete. The tasks reflect increasing
orders of difficulty, and are sequenced to build upon a previous task. A task leads
to a scenario that is characterized by key index values. The default index values
appear in the scenario based on your answers to the prompts in the
Environmental Indexes. However, you (the sourcing executive) can easily modify
these as you see fit.
You can View the solutions once you are satisfied with the scenario values. Click
on the Further Questions button for more diagnostics and risk analysis.
The exercises guide you through typical scenarios to:
(a) Assess the overall risks and rewards from competitive multi-sourcing and
balanced budgets (Fixed Price Contracts).
(b) Link capacity utilization and pricing for multi source price management
(Capacity Constraints Contracts).
(c) Create supplier syndicates with the best risk sharing advantages for complex
programs (Syndicated Sourced Contracts).
(d) Determine work-in-progress payments and advance investments in a given
supplier (Equity Sharing Contracts).
(e) Devise the best incentive and risk sharing rules with independent suppliers
(Incentive Fee Contracts).
4.1
Fixed Price Contracts
This screen presents you with a compact view of the primary risk-reward interrelations from participating in your procurement. Graphs display key buyer and
supplier concerns as solutions to the procurement equations. A brief description
of how you may use the screens is contained here. The detailed development of
the model and concepts is described in the corresponding chapter of the
accompanying book.
© 2004 Sudhi Seshadri All rights reserved.
15
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
To work on the exercises for Fixed Price Contracts:
1. User selects ‘Fixed Price Contracts’ from the exercises dropdown menu
in the Home Page. System displays the list exercises defined for the
selected module as shown in Figure 8.
2. User chooses an exercise. System displays the detailed exercise with
editable input values as shown in Figure 9.
3. User modifies the input values and chooses to view the solution. System
calculates the solution based on the input values to the selected exercise
and displays the solution below the exercise. And also a corresponding
pie chart or a bar chart, if any as shown in Figure 9.
4. User chooses to click on the button ‘Further Questions’. System displays
an interface to save the Index Ranges, set the Index Values and finally
view the results in the form of table of values, line graphs, bar charts or
pie charts, whichever is relevant as shown in Figure 10.
5. User enters or modifies the Index Ranges and chooses to save the
ranges. System saves the Input Ranges and populates the Index Values
with some default values as shown in Figure 10. The user can override
or modify these values here as well.
6. On View, you obtain a top-level report summary we call the Scenario
Strategy Editorial that guides strategic sourcing based on these index
values.
7. User further selects the report for further risk analysis and diagnostics
from the drop-down Select the Report menu. View diagnostic results
over the Index Ranges by clicking on the View button.
8. System displays the result in the form of tables, line graphs, bar charts or
pie charts, whichever is relevant as shown in Figure 11.
© 2004 Sudhi Seshadri All rights reserved.
16
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 8: List of Fixed Priced Contract Exercises
Figure 9: Fixed Priced Contract Exercise Details
© 2004 Sudhi Seshadri All rights reserved.
17
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 10: Fixed Priced Contract Scenario
Figure 11: Fixed Priced Contract Scenario Graphs
4.2
Capacity Constrainted Contracts
This module helps you design fixed quantity awards and fixed price awards,
and determine the circumstances under which each one might be preferable.
It extends your insights from the previous module by relating vendor
© 2004 Sudhi Seshadri All rights reserved.
18
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
opportunity cost to capacity constraints. The optimal degree of multi sourcing
balances the risks and returns from the opportunity cost-capacity constraint
tradeoff.
To work on the exercises for Capacity Constrainted Contracts:
1. User selects ‘Capacity Constrainted Contracts’ from the exercises
dropdown menu in the Home Page. System displays the list exercises
defined for the selected module as shown in Figure 12.
2. User chooses an exercise. System displays the detailed exercise with
editable input values as shown in Figure 13. Go through the exercises in
turn for any session.
3. User modifies the input values and chooses to view the solution. System
calculates the solution based on the input values to the selected exercise
and displays the solution below the exercise. And also a corresponding
pie chart or a bar chart, if any as shown in Figure 13.
4. User chooses to click on the button ‘Further Questions’. System displays
an interface to save the Index Ranges, Set the Index Values and finally
view the results in the form of tables, line graphs, bar charts or pie
charts, whichever is relevant as shown in Figure 14.
5.
User enters the Index Ranges and chooses to save the ranges. System
saves the Input Ranges and populates the Index Values with some
default values as shown in Figure 14.
6. User selects the report to be viewed and modifies the existing default
index values and chooses to view the results by clicking on the View
button.
7. System displays the result in the form of tables, line graphs, bar charts or
pie charts, whichever is relevant as shown in Figure 15.
© 2004 Sudhi Seshadri All rights reserved.
19
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 12: List of Capacity Constraints Contract Exercises
Figure 13: Capacity Constraints Contracts Exercise Details
© 2004 Sudhi Seshadri All rights reserved.
20
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 14: Capacity Constraints Contracts Scenario
Figure 15: Capacity Constraints Contracts Scenario Graphs
© 2004 Sudhi Seshadri All rights reserved.
21
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
4.3
Syndicated Source Contracts
This module helps you design a syndicate for vendors. It extends your
insights from the fixed price scenario by relating uncertain profits, opportunity
cost, and risk premiums to multi sourcing. The optimal syndicate size
balances the risks and returns.
To work on the exercises for Syndicated Source Contracts:
1. User selects ‘Syndicated Source Contracts’ from the exercises dropdown
menu in the Home Page. System displays the list exercises defined for
the selected module as shown in Figure 16.
2. User chooses an exercise. System displays the detailed exercise with
editable input values as shown in Figure 17.
3. User modifies the input values and chooses to view the solution. System
calculates the solution based on the input values to the selected exercise
and displays the solution below the exercise. And also a corresponding
pie chart or a bar chart, if any as shown in Figure 17.
4. User chooses to click on the button ‘Further Questions’. System displays
an interface to save the Index Ranges, Set the Index Values and finally
view the results in the form of Table of values, Line graph, Bar Chart or
Pie Chart whichever is relevant as shown in Figure 18.
5. User enters the Index Ranges and chooses to save the ranges. System
saves the Input Ranges and populates the Index Values with some
default values as shown in Figure 18.
6. User selects the report to be viewed and modifies the existing default
index values and chooses to view the results by clicking on the View
button.
7. System displays the result in the form of tables, line graphs, bar charts or
pie charts, whichever is relevant as shown in Figure 19.
© 2004 Sudhi Seshadri All rights reserved.
22
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 16: List of Syndicated Source Contract Exercises
Figure 17: Syndicated Source Contract Exercise Details
© 2004 Sudhi Seshadri All rights reserved.
23
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 18: Syndicated Source Contract Scenario
Figure 19: Syndicated Source Contract Scenario Graphs
4.4
Equity Sharing Contracts
You can decide the value of resources you will invest in your vendor and
expect to recover within the program. The incentive contract allows you to
share risk with your supplier for controllable but uncertain production costs.
You can design an incentive contract, which is a simple way of sharing risk
with your vendor. The module allows sellers to credibly communicate private
© 2004 Sudhi Seshadri All rights reserved.
24
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
information on their control of production costs to buyers. This is done
through an equity share in the profit from an incentive contract.
To work on the exercises for Equity Sharing Contracts:
1. User selects ‘Equity Sharing Contracts’ from the exercises dropdown
menu in the Home Page. System displays the exercise defined for the
selected module as shown in Figure 20.
2. User chooses the exercise. System displays the detailed exercise with
editable input values as shown in Figure 21.
3. User modifies the input values and chooses to view the solution. System
calculates the solution based on the input values to the selected exercise
and displays the solution below the exercise. And also a corresponding
pie chart or a bar chart, if any as shown in Figure 21.
4. User chooses to click on the button ‘Further Questions’. System displays
an interface to save the Index Ranges, set the Index Values and finally
view the results in the form of tables, line graphs, bar charts or pie
charts, whichever is relevant as shown in Figure 22.
5. User enters the Index Ranges and chooses to save the ranges. System
saves the Input Ranges and populates the Index Values with some
default values (the lower Index Ranges values) as shown in Figure 22.
6. User selects the report to be viewed, modifies the existing default index
values as desired, and chooses to view the results by clicking on the
View button.
7. System displays the result in the form of tables, line graphs, bar charts or
pie charts, whichever is relevant as shown in Figure 23.
© 2004 Sudhi Seshadri All rights reserved.
25
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 20: List of Equity Sharing Contract Exercises
Figure 21: Equity Sharing Contract Exercise Details
© 2004 Sudhi Seshadri All rights reserved.
26
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 22: Equity Sharing Contract Scenario
Figure 23: Equity Sharing Contract Scenario Graphs
© 2004 Sudhi Seshadri All rights reserved.
27
Proxsys® USER MANUAL
Kentropy Technologies PLC
Acquinas Consulting
USER MANUAL
4.5
Incentive Fee Contracts
Your program design for the fixed price contract will be influenced by vendor
risk aversion when vendors are not risk neutral. When production costs are
uncertain, vendors add a risk premium to insure themselves against program
risk. The degree of multi-sourcing will influence the specific risk premium as
well as the incentive for production cost control. This module allows you to
design three different risk-sharing contracts: the linear incentive contract, the
winner's purse contract and the share of business contract. You can choose
the contract that suits your purposes best by comparing them along key
dimensions.
To work on the exercises for (Linear) Incentive Fee Contracts:
1. User selects ‘Incentive Fee Contracts’ from the exercises dropdown
menu in the Home Page. System displays the list exercises defined for
the selected module as shown in Figure 24.
2. User chooses an exercise. System displays the detailed exercise with
editable input values as shown in Figure 25.
3. User modifies the input values and chooses to view the solution. System
calculates the solution based on the input values to the selected exercise
and displays the solution below the exercise. And also a corresponding
pie chart or a bar chart, if any as shown in Figure 25.
4. User chooses to click on the button ‘Further Questions’. System displays
an interface to save the Index Ranges, Set the Index Values and finally
view the results in the form of tables, line graphs, bar charts or pie
charts, whichever is relevant as shown in Figure 26.
5. User enters the Index Ranges and chooses to save the ranges. System
saves the Input Ranges and populates the Index Values with some
default values as shown in Figure 26.
6. User selects the report to be viewed and modifies the existing default
index values and chooses to view the results by clicking on the View
button.
7. System displays the result in the form of tables, line graphs, bar charts or
pie charts, whichever is relevant as shown in Figure 27.
© 2004 Sudhi Seshadri All rights reserved.
28
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 24: List of Incentive Fee Contract Exercises
Figure 25: Incentive Fee Contract Exercise Details
© 2004 Sudhi Seshadri All rights reserved.
29
Kentropy Technologies PLC
Acquinas Consulting
Proxsys® USER MANUAL
USER MANUAL
Figure 26: Incentive Fee Contract Scenario
Figure 27: Incentive Fee Contract Scenario Graphs
© 2004 Sudhi Seshadri All rights reserved.