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Safety Zone: Less Is More, A Simple, Effective Strategy for Eliminating Costs from Things You Buy
Procurement Tips: The products you are buying may be costing you more than you think if you haven''t streamlined your purchasing practices lately.
By Gabriel Curry
Date Posted: 6/1/2011
Like everything else in business, safety ultimately is an issue of dollars and cents.
Without diminishing other reasons we may have for wanting to take good care of those who work for us, we need to be profitable or we can’t “take care” of anybody.
Injury prevention is way more cost-effective than injury loss. That much is obvious. But I want to talk this month about something even more subtle: how to get the most for your money when ordering safety supplies.
As a supplier to pallet and lumber companies, my team has been raising the issue with customers trying to get them to consider the real-world cost of things like inventory and purchase orders when calculating the true cost of consumable supplies.
What does that mean? It means that you add to your overhead if you keep more inventory on hand than necessary. Your inventory ties up space in your shop and is subject to 3% annualized shrink in the form of spoilage, theft, and damage. The more you stockpile, the more it costs to keep it.
Purchase orders have a cost as well. It might seem like fixing the cost of a purchase order would be about as meaningful as knowing how many people on your staff like blue as their favorite color. But stop and consider how many “touches” a purchase order receives before it is filed away for good in your archives. Let’s follow a typical order and see:
Your shop foreman’s inventory check shows that it is time to restock on gloves. After the decision is made to order gloves from company X, the purchasing agent gets an approval from a manager to authorize the purchase. Purchasing cuts a P.O. and faxes it to company X. A copy is kept on file. The gloves arrive at your receiving dock with a bill of lading. Your shipping clerk checks the bill of lading with the contents of the package to ensure that it exactly matches contents in the shipment and forwards the gloves to the shop foreman. He forwards the bill of lading to an accountant who checks it against the purchase order and files them together. An invoice arrives and is given to the payables department who checks it against the P.O. and files it for payment. A check is generated at the appropriate time and forwarded to the comptroller to sign. If there are any items on the invoice that require “sales and use” tax to be paid, the invoice is filed in the sales tax folder and tax is paid at the appropriate time.
I’m counting at least eight “touches” in the above paragraph. And that’s when things work smoothly. What do you suppose happens if items are backordered, shorted, damaged, or otherwise don’t match up with the purchase order? Time is money, my friends.
You can reduce the amount of time (and money) expended on purchase orders by generating fewer of them. You can do that in a variety of ways. One way is to become more proactive in your ordering of consumable supplies. You can usually predict how often things like PPE get ordered based on past history and cut the frequency of your resupply orders simply by consolidating consumables into one blanket monthly or biweekly order.
Another strategy is to consolidate your suppliers so that you order more items from fewer sources. The price advantage of buying from boutique suppliers is more than offset by the savings you can gain in fewer purchase orders by buying from a supplier who can send you everything from soup to nuts in one shipment.
Some of you reading this are no doubt frustrated with my emphasis on purchase orders when anyone can see this strategy will have obvious savings in shipping costs. At a time when those costs are only going to go higher, why belabor hidden costs of purchase orders? To those readers, I can only nod my head in hearty agreement. Shipping expense is a clear beneficiary of this strategy. Either way you make the argument (or both), the savings are well worth it.
Gabriel Curry is President of Hub Industrial Supply. He can be reached by email at Gabriel@hubindustrial.com or by phone 800-743-9401 or visit www.hubindustrial.com.