- Jared Simmons Design to Value
Jared Simmonds, Will Bachman
Will Bachman 00:03
Hello, and welcome to Unleashed. I’m your host will Bachman. And I’m excited to be here today with Umbrex member, Jared Simmons. Jared, welcome to the show.
Jared Simmonds 00:12
Thanks so much. Well, I’m excited to be here.
Will Bachman 00:15
So Jared, this is part of our sort of mini series around cost reduction cost optimization. You’re an expert on design to value, you did that at McKinsey. And subsequently and before, tell us a little bit about like, first, maybe start with the definition tell us what what is designed to value?
Jared Simmonds 00:33
Sure. So design to value is a set of tools and a work process that’s organized around increasing profit or increasing value for the company and for the consumer. And so that can take the form of a number of different it can take form in a number of different ways. But it’s always about increasing the value to the consumer and reducing the cost to the, to the company to produce or deliver it.
Will Bachman 01:08
Great. So maybe, maybe you can walk us through a case example to help us understand what that really entails.
Jared Simmonds 01:17
Sure, so. So we’ve worked with a number of different companies around this process. But I’ll abstract one for that, for this conversation. Let’s say we were trying to, to increase to drive cost out of a wipe. And we know that the wipe has a certain thickness, which makes a certain cost for the substrate, we know that the the lotion on it has certain ingredients in them, PubMed has cost associated with it, we know that the primary packaging the the box that it comes in, has cost. And we know that the secondary packaging the case that is delivered, it’s delivered in the tertiary packaging, the case that’s delivered that delivered to Walmart or or Target has costs associated with it and moving it back and forth from the plant as well. The production process as cost in it. And so design to value is aimed at taking a look at end to end across that entire value chain from starting materials all the way through to the use of the product at at home. When you pull the wire out of the out of the box, where can you drive cost out? And so an example would be looking at. So the way we would go about it is to look at what does the consumer care about. And so we look at what value what the how the consumer defines value in that space. So maybe a consumer doesn’t care as much about lotion as they do about the substrate. And so maybe what we might look at is how can we trade the cost in one material or cost in other that will actually drive profit. So what what we might do is use a less expensive material A for the for one for one piece of it for the for the substrate, and use an add a little bit of cost to the lotion, to up the benefit so that we can talk about it. And so we’ve driven we’ve now driven down our bottom, we’ve now increased profit by not only driving out cost, but adding back costs that that actually drives profit for the company. So that’s that’s designed to value is how can we move cost down and consumer value up in such a way that we can we can actually drive profit as well. All
Will Bachman 04:00
right, very cool. So let’s say that you and I were going to write a design to value playbook and you kind of walk a smart, intelligent person, but who hasn’t done this before, through the process kind of end to end. Maybe what would you if we were starting high level, what would you say would be kind of the chapters or steps in a design to value playbook?
Jared Simmonds 04:25
I think the first so the first step is defining value and creating a shared understanding of what that value is. Some organizations are about maximizing profit. Some organizations are about maximizing volume or throughput. Some organizations are about driving out cost. And so the first step is getting the entire everyone is responsible for each step in the value chain on the same page in terms of what the program is intended to do. So So Often it’s impossible to come back from that from misalignment at that step. Okay.
Will Bachman 05:06
So when you say, understanding value, we’re talking about value for the the company that’s running the project, but there’s also value for the end consumer of the product. Right? Which one are you referring to?
Jared Simmonds 05:24
In this at this moment, I’m talking about what is value for the for the organization? All
Will Bachman 05:29
right, so, so like, what are the goals of the project? Maybe? That’s right. Because we don’t want to get confused, like designed to value for that. Okay, so come up with the goals for the project, what are we trying to do? Are we trying to cut costs? Are we trying to make it more of a premium? Are we trying to grow volume market market share? Figure that out? Okay, good. First step. Let’s, what? Maybe just run through the remaining steps, and then we can dive into some of them in more detail. Sure.
Jared Simmonds 05:55
So then it’s a matter of mapping out the value chain end to end. So starting materials, all the way through to, to the in use, and understanding the basic cost structures associated with each of those steps. So mapping the value chain.
Will Bachman 06:14
Okay, map value chain. Okay, that’s number two, we’ll get back to that one. Sure. And then, but then keep going, what’s number three?
Jared Simmonds 06:20
So then what you want to do is, understand the consumer priorities or preferences? There’s a lot of terminology in that space. But basically, what does the consumer care about? And what are they willing to pay for?
Will Bachman 06:36
Okay. All right. So, and this is assuming that it’s a current product that already exists, right? So we’ve mapped out the current value chain. I guess you could also do this for a potential future project Exactly. of you know, what do we think it’s going to look like but that but that value chain for an existing product, let’s say, figuring out consumer preferences, and what’s step four?
Jared Simmonds 07:03
So step four, is finding a way to map those two to each other. Okay, so what? What does $1 of the delivery cost? Get me in terms of consumer preference? What does 50 cents of raw material get me in terms of consumer preference?
Will Bachman 07:24
Okay, and then, so we map those, and then what’s step five? Or chapter? Yeah,
Jared Simmonds 07:29
chapter five is, is creating projects and programs to to capture the defined value. Okay, cool.
Will Bachman 07:43
So I think I can understand about chapter one, step one, we’re going to understand the goals of the overall effort. What’s the company trying to do? Okay, right. Walk me through, though. Step two, mapping out the value chain. So let’s say we have a smart consultant who hasn’t necessarily done that before, and says, Okay, I get the idea. But there’s probably a lot of nitty gritty and lessons learned involved in secret tips and tricks. How would you like what would the, you know? What would the sections of that chapter be mapping out the day chain?
Jared Simmonds 08:19
Sure, I think the first step is to get to get a shared understanding of who’s responsible for which steps in the value chain. So what are the steps in the value chain? And what are the decision rights and responsibilities within those were where things kind of fall apart sometimes is, you say, Okay, well, there’s incoming raw materials, and then there’s, then there’s converting those materials into into a product. And some of the costs in that box of converting raw material into a product aren’t controlled by the operations organization. So, so it’s a there’s a difference between mapping the unit operations and the steps and how it gets converted, and mapping, who’s responsible for which costs were. And that, that is the that’s the nitty gritty of that front end is, who sets the price for the incoming raw materials? What is it based on? Is it regional? Is it geographic? You know, are these costs different? If they’re delivered to different places? What’s the impact of currency, all these other things? So there are 100 different ways you could alter the cost of the starting materials alone. Does that make sense? Yeah,
Will Bachman 09:44
but talk for another few minutes about this piece. So even there’s a couple different elements of it. It sounds like one is the incoming raw materials one is two is the converting the products. I don’t know if there’s any other ones but maybe Double click on incoming raw materials, we assigned someone to go do that. Yeah, you’re running a team, you have a smart Senior Associate. Yeah. Is it? Okay, Jared, give me some, give me some guidance here. How do I, how do I do this? Sure.
Jared Simmonds 10:15
So usually in a large company, and that’s what we’ll, we’ll focus on here. Usually, in a large company, there’s a person responsible for buying the product and a personal response or the starting material and a person responsible for specking it saying this is what we need that to meet the performance of the product. And so you have to have a good working relationship and understanding of how each of those people go about their jobs for each each material class. For example, in like procurement, in a procurement organization, one procurement manager may be trying to maybe fighting shipping costs, the other procurement manager might be fighting currency. Another one might be trying to move to a, you know, from supplier X to supplier y. So you have to understand what they’re trying to what they’re trying to accomplish within their role, and how that affects the total cost to the to the project. So, so that would be my first kind of bit of guidance to that senior associate is to get is to understand what the which are the high leverage starting materials, and which of those are, you know, are being managed in a way that we can take advantage of their goals to accomplish the driving driving cost out.
Will Bachman 11:47
And I imagine there’s a lot of complexity at this, because you might get, maybe there’s something where you have to buy 100 of them at a time, and they have an expiration date, and you could get the per unit price. But maybe your operation only uses 57 at a time, and they throw the rest away, because they expire. So you have to be pretty careful about the cost accounting on this to figure out, and also you’re gonna want to ignore the shipping cost to your point. And there may be even even, like an internal costs to place the order and to, you know, receive it and quality control it and so forth. That’s,
Jared Simmonds 12:24
that’s exactly right. And there may be a strategic reason for having them in the in the value chain, maybe, you know, they only have this one SKU that you’ve been asked to look at. But they have that SKU so that they have a so that they are a qualified supplier, and they’re in the mix as a backup for 60% of the other volume. So there’s always these unintended consequences to kind of moving these levers when you come in to do a cost optimization project. You know, you have to you have to respect the intelligence and and effort of the people who are who’ve been working every day, and not just look at the sheet and say, Oh, this is they’re paying 20 cents for this. That’s ridiculous. You know, we can get it for 10 cents over here. There’s, there’s usually an answer as to what, what makes that cost palatable for that procurement person and the rest of the organization.
Will Bachman 13:24
Great. And then, in terms of the kind of converting the products piece, what you’re doing internally to it. Talk to me about some tips and tricks you’ve learned over the years. And some things that get you tripped up. Related to that.
Jared Simmonds 13:40
I think that one of the biggest items that can trip people up in this area is external benchmarking. And I know as a consultant it sounds it sounds ridiculous. For me to to say the external benchmarking is a is a problem. But for this work DTV across the entire value chain. internal benchmarking is much more valuable than external benchmarking, because because you don’t have the context on how how that other organization reached that number and what goals they’re trying to accomplish. So that’s particularly problematic in the converting process, because of the amount of capital involved in the amount of labor involved. And if you try to match one of those numbers, across companies or across business units or across regions, I’ve seen a lot of projects go sideways, trying to do that.
Will Bachman 14:45
Now when you say internal benchmarks, I can imagine if you’re facing dog food at 20 different factories, then you’d have some good internal benchmarks, right? You could probably, hopefully have similar accounting methods that you’re different 20 plants and you can compare your conversion cost. But say a little bit more about, you know, how you would go about getting internal benchmarks why you might want them and, and when they might be valuable when they might not be?
Jared Simmonds 15:11
Sure. So that’s a great example. If you make the same product across multiple plants within the same currency in the same basic geography, it there’s there are fewer potential, there’s less of a potential to kind of be misled by that the best internal benchmark, to me, in my opinion, is the current state, whatever is currently happening. And it’s amazing how little understanding some project teams and consultants coming in have of what is currently going on. Because once you establish this sort of dashboard and say, Okay, well, these are the eight metrics that we’re going to move, and this is the project and this is how it’s scoped, it’s very easy to lock into that sort of view of the world. And, and, and, for me, getting a full picture of, you know, what is what is driving each of those numbers is, is what I consider an internal benchmark and what I consider to be much more valuable than a case study or a an example from, you know, another business unit or another, another company.
Will Bachman 16:33
Let’s go on to section this sort of the third step, which is understanding consumer preferences and what people actually care about and what eight four and what how would you kind of break that down into sub steps for people,
Jared Simmonds 16:51
I will break it down into sort of functional and and psychographic segmentations. So a psychographic segmentation is kind of what I think and believe about the product and the benefit. So you know, I’m looking for a, I’m looking for a watch that provides me with step a sense of status and style, versus a watch that is functional and can work under, you know, under 1000 meters of water. That’s a psychographic. This the function style is sorry, the style, and, and prestige sort of mindset is a psychographic kind of view of things. If I am looking for something that works underwater, you know, keeps time to the 1,000th of a second, it’s tied to the atomic clock, those are features. And so that’s more of a functional segmentation. So most, most categories, segment out along one of those two lines, and one of those two lines usually is predominant in the class.
Will Bachman 18:07
And how do you go about actually determining this? How do you you know, get this insight? Yeah,
Jared Simmonds 18:17
it’s an artful combination of qualitative and quantitative research, different types of methodologies, one on one interviews, focus groups, dyads, or triads, sometimes you expose them to different versions of the product. In those conversations, sometimes you don’t. On the quantitative side, there are all sorts of concept driven non concept driven questionnaire type assessments you can do to get quantitative data to say, you know, statistically speaking, are these are these options different in the minds of the consumer? So it’s, it’s an entire field in an in and of itself, but it’s, it usually boils down to talking to people about a product or actually having them use it and give and giving you you know, quantitative scale based responses.
Will Bachman 19:18
The dyads and triads. What’s that mean? Oh,
Jared Simmonds 19:21
sorry. So, one on one interview is just want you talking to one person, so, you know, in my baby care days, p&g, you know, I would sit across from a mom and hand her a baby wipe or hand her shampoo or talk to her about her experience with a baby wipe or a shampoo. A dyad would be one person talking to two. That’s useful. When you still want to make sure you hear you get depth, but you also get you know, one one mom may say, oh, you know, I noticed that it fell Little rough coming out of the package. And the other mom would might say, You know what, I didn’t think about that. But now that you mentioned it, I noticed that too. So you get a little more richness for the diet than a one on one. And then the triad is three, and then four focus groups are usually 468.
Will Bachman 20:19
Nice see? When you’re doing quantitative, some of that might be, I don’t know, conjoint analysis or some things to tell me about some ways to set up quantitative work on this that actually gets results? Because if you just ask people, What would you prefer? Sometimes you don’t get ab as accurate as if you’re potentially asking for real trade offs, like, which would you prefer, like this set of features in this price, this set of features in that price? Talk to me a bit about how you do that quantitative research. Yeah.
Jared Simmonds 20:51
And I’m going to talk specifically in the context of design to value what’s usually what’s super helpful in the context of the design of value isn’t? Would you like this fully finished? Product? Do you like this 2024. Mustang, it’s more, it’s more like, which of these five steering wheels get, you know, makes your hand most comfortable. And then separately, you can start to you can do a separate analysis to understand how important steering wheel comfort is, in the overall process of an overall purchase intent. Calculator unconscious calculation going on in the in their minds. So conjoint, a lot of times tend to ask, function, you know, how important is this? And how much would you pay for it at the same time. And that’s just a, that’s a lot of, it’s a lot of math and decisions for people to make, if you’re especially if you’re going back to if your goal is just to go back to say, Okay, we we can take, you know, five millimeters out of the diameter of the steering wheel.
Will Bachman 22:12
Yeah, but it’s on your baby wifey example. Let’s say the team has a whole bunch of ideas around how to reduce the cost of product, but still provide most of the value or maybe even increased value with changing it. And maybe it’s a premium baby wipe right now that’s, you know, has aloe vera. And it’s organic materials, and it has like, no scent, because people are set by the scent. And you know, it has few other I mean, other sorts of features to it. How would you go about trying to sort out which ones people actually care about and will pay more for which ones they sort of like, but would not pay more for which ones they actually dislike or something, but particularly trying to figure out the expensive ones, the Aloevera? Or something? Is that worth the extra 10 cents of you know, cost? To add it there? How would you be figuring out on multiple dimensions when it’s not just pick? Which one? Do you like better? A or B? Right? There’s a lot of different a lot of different factors, how do you do that research
Jared Simmonds 23:15
prototype. So building it and having them react to it in a either a single product test or a pair comparison test. Single Product being, you know, five people use this one, five people use that one, five, people use the other one, and you trust that those five, those groups of five people are similar enough that you can compare their responses. paired comparison being half of a half of the group uses product day, and then product B the other half uses product B and in product A and you compare their their, you know, their, their preferences across their answers. So So the bottom line is conjoint has a lot of wonderful benefits and uses for design the value the key is getting to a functional prototype that people can interact with Emory react and respond to. So So for baby wipes, that’s that’s that’s one thing for, you know, a 747, that would be something different. So it’s it really depends on where you are on that continuum. And, again, that’s why it’s so important on the front end to say, what we’re trying to do here is drive out cost because you’re going to find all sorts of opportunities in the consumer work. And as things cut, float to the top, there’ll be things that marketing gets excited about. There’ll be things that the operations folks get excited about. There’ll be things that procurement gets excited about. If you don’t have a single single Northstar to say this is what we’re doing with this program. That’s where sort of competing priorities and can can create can lower morale, and drive people out of the process.
Will Bachman 25:15
So let’s move on to the next stage, mapping those two together. So we’ve done our consumer research, we have a sense of what their psychographic they prefer and their functional and their features. How do you go about now integrating everything that we learned about the supply chain, and the cost structure and consumer preferences in this step?
Jared Simmonds 25:38
So this is a critical step. And it’s not math. It is its decision, right? It’s priorities. And it’s, and it is a fundamental understanding of the company, the industry and the consumer. So back, you know, we kind of flashback to the procurement conversation, you have to have someone in the room who has decision rights across that entire value chain. So they can say, Yes, this consumer prefers this. And yes, it would save us $10 million in this type of cost. But we would have to move, we would have to then go qualify a new supplier on this in this other place, and that would cost us $25 million, so we’re not doing this. So putting them together is really more of a construction is more of constructing scenarios. And that’s, that’s an important step. And it’s important to have external support on this part in particular. Because the what ifs can get very, there’s a lot of rabbit holes and a lot of possibilities. And helping you need someone that’s not quite as close to the, to the implications to be able to say, Okay, with that we’re not going you know, based on the priorities that you set, this doesn’t seem like it’s a good fit. So we’ll put that over here and leave there with this organization to look at in the future. Okay.
Will Bachman 27:16
I’d love to hear a bit about your firm and your practice switching away maybe from the playbook now. You’re just giving us a sense of in the real world? What sorts of impact can these programs had, and you know, some of your experiences that? Sure,
Jared Simmonds 27:31
so um, so our firm is a small, small firm, we’re a boutique consultancy, we work in the innovation space, we just have a few employees. And we we staff up for bigger projects through through partnerships and collaborations. And so our goal is to be able to come in and support the team that is doing the work. So rather than bringing the playbook and installing a new work process, we we come in and learn their work process and fit and adjust it and tweak it to fit the intent and the principles behind the plate that playbook. So we find that that actually speed speeds the adaption of design the value principles. And it also deepens the understanding, because it leaves gives the organization, the employees in the organization, the opportunity to bring their expertise to play in a construct that they’re already familiar with. So they’re not having to learn design a value and figure out what how would they know fits into that they just do what they do. And we show them how it fits.
Will Bachman 28:51
And what sorts of like what sorts of products or services have you worked on? I mean, obviously, keep it sanitized, but but whatever you can share at a at a sanitized level.
Jared Simmonds 28:59
Sure, sure. So we’ve we’ve worked on a yogurt yogurt portfolio. We’ve worked on a sports drink nutritional drink portfolio, they actually worked on distribution, a company that distributes gas products is gas, controlled by products, so the meters and the things that are associated with that. We’ve worked with a few other few other industries, most very similar to in the CPG space. But we’ve applied it in in in some other domains as well. But those are a few examples.
Will Bachman 29:55
I’m curious if you could give some examples of things where you’ve discovered that You know, companies are providing it, whether you know, it’s a feature, or it’s part of the packaging or something. And when you’ve looked into it, you found that customers didn’t actually value it that much. And you were able to eliminate things. I mean, my own experience, sometimes, like, seems like sometimes you get stuff from Amazon now. And it’s not in a fancy box, it’s like the box is the box like, so you’re talking about secondary and tertiary packaging. Seems like they’ve somehow in some cases, gotten rid of that. But curiously, what you found were companies just from, you know, historical whatever, they do it in a certain way. And when you’ve gone in, you’ve found out that customers don’t actually care about that feature, or that piece of it, you can just not deliver that.
Jared Simmonds 30:49
Right? Yeah, no, we’ve we’ve definitely found, we’ve definitely seen that in a number of different places. And I would say the the theme across the places where we find that is, the closer the cost is to the perceived equity of the brand of the company, the more likely that is the case. We’ve literally been told, yes, this is inefficient, yes, we’re paying too much for it. But don’t touch it. And, and it’s like, you know, people, you know, it’s, we also do professional development coaching for STEM professionals. And, you know, there’s always, you know, the things that are closer to how you define yourself as a person are the harder things to work on. And it’s the same with with a company. So, so what we tend to do is, you know, check it, you know, document that we’ve identified it offered up as an option. If they choose to not pursue it, that’s, that’s always the client’s prerogative.
Will Bachman 32:02
What sort of savings can accompany capture, and obviously has to be a pretty wide range. But in your experience, what have you seen, in terms of how much savings can you capture? If that’s your goal with one of these design to value programs?
Jared Simmonds 32:17
Yeah, we try to we try to, we only take on projects where we think we can deliver 10 times are what we would charge to do the work. So. So if we’re working with a, you know, a billion dollar firm, and they, you know, they have $100 million in addressable spend that they want us to look at. And we think there’s a $10 million savings opportunity within that. Our question is, Can we can we help them capture that for a million dollars or less, so it’s less about what they can save? And what leverage they can get on their time investment?
Will Bachman 33:01
I see. input in terms of like the spend, what would you say is the typical range more, or let’s say, let’s say a typical, even, you know, make it specific to CPG and accompany someone, you know, a company that has some kind of something in the CPG, you know, category, either beverage or, you know, one of those center aisles there at the grocery store? Sure, yeah. You do design a value on it? What’s the typical cost savings? You can think about? Is it like, anywhere from 5% to 50%? Or what would be sort of typical that you could capture without reducing the value to the consumer that much? Yeah,
Jared Simmonds 33:43
I would say it’s probably more than that five to 15% on an ongoing basis, depending on what your what your comfort to things, your comfort level, with driving out cost, and changing things and the product. And then and then how much of that work you’ve done already. So if you know, if I’m going into Procter and Gamble, for example, there’s less opportunity already know, because they have this as part of their DNA. Whereas if I’m going into a company that has grown quickly, maybe they’re a coffee roaster or something that you know, has grown quickly and suddenly they’re 50 100 million dollar business, there’s probably a lot of opportunity there to drive out costs because because they you know, they don’t have the staff and focus allocated allocated to capturing rate.
Will Bachman 34:42
Jared, for listeners who want to follow up with you, or find out more about your practice, where would you point them online?
Jared Simmonds 34:48
Our website, Outlast llc.com. You can find this we’re outlasts consulting on LinkedIn. I’m Jared Simmons on LinkedIn as well. Well, and those are probably the best places to go to to reach out and you can request a consultation on on our website and talk to me specifically.
Will Bachman 35:10
Fantastic. Well, we will include those links in the show notes. Jared, thank you so much for joining today.
Jared Simmonds 35:16
Oh, thanks for having me. Well, I was played