Recycling down in the Purchasing Department
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| Say no to recycling old ideas. |
It seems as though they believe the time is right for recycling an old plan to drive our prices downwards. First rolled out back in the early 1990s, this plan starts off with a nicely worded statement, “You are a fabulous partner and we value the relationship our companies have built over the years. Because we both invested so heavily in making all this work, we want to help you grow your business with us.” Sounds pretty good so far, but then things take a nasty turn.
The purchasing guy is likely to word it something like this. “We are asking all of our good partners to help us be more competitive in the market. And to do this we need for you to accommodate us by helping to drive down our costs.”
If you are a knowledge-based distributor, you’ve already spent countless hours and company money driving down their costs. But the purchasing guy seated across the five thousand dollar conference table from you isn’t thinking about cost. He’s thinking about price. And, since you’ve most likely not done a great job of cataloging all the assistance you have provided over the years (90% of the distributors I talk to don’t), you struggle to come up with an answer.
You can begin to back-pedal or you can stop, stand your ground and offer to showcase the value your organization has provided over the years. Knowledge-based distributors leave a wake of real customer value wherever they go. It’s imperative you are prepared with some real examples.
Real is the key word. Here is a quick list of stuff that won’t work.
Knowledgeable Salespeople
Do you think any company really sends someone out who says "Hi, I don't know anything?"
Credit
Who doesn't offer credit of some kind, or at least take Credit Cards?
Inside Support
Another one that's hard to measure. Nobody says, "We pick up our inside people down at the wino bar."
Now let’s talk about some of the good stuff; stuff you can sink your teeth into. All of these are areas an MRO purchasing manager would be foolish to ignore. All produce measurable dollars. Most of these are things you normally do, or could do with little or no extra cost to you.
Maximize Warranties
Each year our customers buy thousands of dollars of products that are covered by warranty, or could be covered by warranties. How does this happen? Busy maintenance people throw questionable parts and products away. The customer hasn’t studied the warranty policy. Or, the customer doesn't know how to determine the warranty. Here are some examples:
• Hand tools -- Many of these have a lifetime warranty
• Proximity switches – Lifetime warranties are the norm
• Electrical products -- 18 months (12 months in customer / 6 months grace period)
• Electronic lighting ballasts -- often covered under warranty
Each time a warranty is used a savings is generated. Compile a warranty list and use it to record the values of product replaced or repaired for under warranty. To begin the process, I suggest that you create a spreadsheet with companies and their respective warranty time for your personal reference.
Repair vs. Replace
Many items are routinely replaced that could just as easily be repaired. Electronic devices come to mind, but the list can include some other products where a skilled person could easily make an evaluation and determine the proper action.
• Extension cords -- are they repairable? (Also see above warranty info)
• Electronic cords of all kinds
• Solenoid valves -- moving parts can be replaced
• Electrical motor starters – contacts and coils are easily replaced
Position yourself to serve as the watchdog for repairable items. Log the value. How much can you eliminate from the “waste stream”? Each of these items represents not only a measurable savings in the repair vs. replace equation but often represent savings in landfill charges. Printed circuit boards and other electronic devices often require special handling in their handling and disposal.
Proper Inventory Levels
Is the plant keeping excess inventory in their crib? This is true in many instances. For example, does the plant have a stock of twenty 30 Amp Fuses? If so, in the case of an emergency how long would it take for an emergency delivery to be made? In many cases the plant is only minutes away from a large supply kept on your own shelf.
When evaluating inventory it is important to note multiple types of savings. I have listed some of these for you to discuss with your customer. Be sure to take credit for all of these savings.
• Cost of inventory - this is the product
• Cost of carrying the inventory - this is the interest charge
• Cost of shrinkage, inventory control, etc. - this is real stuff and can't be left out
• Cost of insurance - what happens if there's a fire?
• Cost of shelving/material handling - these cost money
• Cost of floor space in the plant - especially if the plant is running out of space
Again logging the total savings is the key to claiming this activity as a “real live and completely legit” savings.
Energy Related
The whole world has been struggling with the rapidly rising cost of energy. There are a number of things that you can do to make sure that the proper savings are realized. Here is a short list.
• Energy Efficient Lighting Walk-through
• Energy Efficient Motor Survey
• Energy saving fans re-circulates the heat
• Automatic Door Closers
With gas now pushing four dollars a gallon everyone is thinking energy. Provide recommendations, and more importantly, keep records of how much energy was saved, the cost of kilo-watt hour and the cost of any steam, diesel, or heavy oil saved.
Standardization
Is the customer using the right product? Or, are they using a "Cadillac Line" when a "Chevy" will do? Can we show the customer where there is little if any difference between two manufacturer's products? Another aspect of standardization is the trilateral negotiations we can guide the plant through to gain price or other concessions. Some ideas:
• NEMA vs. IEC designed electrical devices
• Fiberglass vs. Stainless Steel Enclosures
• Sensors
Most companies calculate annual savings. To do this, you need the annual number of parts used each year and the saving in per item. Log the difference.
What were you doing on January 23rd, 2013?
Log the savings you provide! You provide the greatest service in the universe. You have a team of savings specialists who comb the land looking for ways to save your customers money. You even understand the importance of measuring your service in most universal metric of human endeavor, money. But I ask again – what were you doing on January 23, 2013? If you don’t keep a detailed journal, chances are you don’t know. By the same token, if you don’t keep a detailed log of savings provided, you won’t remember. The log can be simple and easy. A MS Excel worksheet with a single spreadsheet for each customer will work. A full feature software package is available from several companies to assist in measuring and logging your value.
In Closing
Provide service. Measure the benefits of your service in dollars. Record value-add events for later reference. And, next time you hear the statement “I am being told by our corporate people that I have to cut costs by 5%.” You’ll be ready to Sell!
A note from Frank…
Much of this information came from work we did with an Electrical Distributor selling into the MRO world. Trust me; there are similar values created in your own organization. If you are struggling to identify your own, shoot me an email. I will help you get started.
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Don't forget to pick up Frank's latest book on Amazon.com
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