A prominent sports organization in the area (that shall remain nameless) normally uses an outside materials supplier to stock about 200 individual consumable items (paper products, food and drink items, etc) on a regular basis. Every week this supplier would restock consumed products (like a visual kanban system without the cards) so that there is limited inventory buildup and no stockouts.
During a recent analysis of the upcoming year’s budget during a planning session, a department’s manager went through every line item with a fine-toothed comb and identified three consumable products that he wants pulled from the contract.
Why? Because they’re cheaper at Sam’s Club.
Which is fine, but here’s his plan. He and an associate will take turns driving to Sam’s Club and filling their cars with six month’s worth of these three products. These products will be stored on-site somewhere and will be retrieved as consumed.
I would like to point out the fact that this sports organization is in no financial dire straits. The need to pinch pennies is not evident.
But here’s the problem with the plan. Sure, you’re saving a few bucks on these products at the per-piece price. However, what about the costs of storing all of these items? Can’t the space reserved be used for something more important? This is a change from the normal procedure, so whatever is in that space now will have to find another space.
And how about the costs of going to obtain the items yourself? You’re spending your time (and the organization’s time) on this activity (and the organization is paying your salary to do so), and you’re spending money on fuel and vehicle maintenance to go back and forth to the store.
In addition, what happens if the huge glut of excess inventory somehow goes bad? If you’re buying paper cups and the building in which they’re stored in has its roof cave in and the paper cups are ruined, you’ve lost all that investment. The cups are now defective and the organization will have to spend money to replace those cups.
And now there are receipts to submit for reimbursements, extra walking and extra motion needed to complete those processes, an extra supplier to manage…basically, the lean wastes are everywhere and that unit cost difference isn’t looking so fantastic anymore.
This is where outside material suppliers can prevent your organization from being penny-wise and dollar-foolish. All costs of doing business should be considered when making changes – I’m sure that if the manager that made this decision were aware of the extra costs being incurred by him, his associates, and his organization he would think twice.