Are We Too Cost Conscious?
Jim Correll, director Fab Lab ICC at Independence Community College, Independence Kansas
Our society is obsessed with saving money. Advertising and the media bombard us with messages presenting low cost as the number one goal we should have in our lives. One car dealer in Tulsa recently unveiled an electronic display board that supposedly shows comparative pricing of all area dealers on “identical” models of cars. Of course, theirs is always going to be the low price. Hmmmm. We may have gone a little overboard in our zeal to do all our business with the lowest bidder. At the risk of sounding like sacrilege to many accountants and business managers, many of us may have become too cost conscious.
In the late 1980’s, I became the purchasing manager at a machine and sheet metal job shop in Wichita; John Weitzel, Inc. (JWI) The company had been in business many years starting with Cessna as the main customer. When I arrived, Boeing was the main—nearly only customer. JWI had hired a new CEO and was in trouble with Boeing; 435 delinquent orders. It was JWI’s last chance. I was part of this team and news that JWI hired a fresh purchasing manager traveled fast. I had many free lunches over that first couple of months as many of the raw material and industrial supply dealers vied for our purchasing business.
I was determined to be cost conscious. Our manufacturing resource planning (MRP, anyone remember when we called them that?) system did great once you put materials on order but offered nothing to keep track of quotes from various vendors. Relational database software, affordable to small businesses, was fairly new so I wrote program (now we would call it an app) to keep track of the quoting activity as I acquired the raw materials, industrial and office supplies needed to run this company of 150 – 200 employees.
For nearly every purchase I sent out requests for quote to three or four vendors. No email back then so we used something called a fax machine. The quotes would come back on the fax machine and I would enter the information into my database. A report would show the results of all the quotes so I could process purchase orders to the lowest bidder for each item.
This process did a great job of showing me everyone’s quoted price, was a lot of work, just as much work for a $5,000 raw material order as it was for a $250 drum of machine coolant. Continuing the process for the raw materials we needed was worth the time, but for the smaller orders of supplies, was unsustainable. I had too many demands on my time, including restocking a depleted tool crib with the stuff we needed to make air craft parts. In addition, it was difficult to get the smaller supply dealers to respond quickly to my emergent needs—and there were many—when they each received just a small piece of our purchasing pie.
One of the industrial supply dealers came by one day and said “Look, why don’t you buy most all of your supplies from us for a trial period of six months. We’ll provide good service, especially when you need something fast, and we’ll give you a good price. Also, we’ll provide you with good information since you’re new to this industry.” I decided to try it. Did I mention sacrilege? That’s what the production manager thought of this new plan, however, I reported to the CEO and he did not micro-manage. Overall this was a successful strategy. The new team worked well together and in 1993 JWI won Boeing’s Small Business Supplier of the Year Award. It was during the trip to Seattle to receive the award I met Susan, later to become wife of JWI’ purchasing and inventory manager, but that’s another story.
For a growing number of us in business and our personal lives, we should consider more than just price when making our purchases. Convenience, time savings, knowledgeable help available and an overall pleasant experience by vendors are necessary considerations and should all be part of the process. That’s where small local businesses have the opportunity to thrive. Most of the larger businesses can’t figure out to make the overall experience enjoyable so they advertise the lowest price.
Jim Correll is the director of Fab Lab ICC at the Center for Innovation and Entrepreneurship on the campus of Independence Community College. He can be reached at (620) 252-5349, by email at firstname.lastname@example.org or Twitter @jimcorrellks.