Time and the savings dilemma; where is purchasing?

As VP of operations, “Jim” is responsible for production output as well as P&L (profit and loss) goals. Production is running near capacity and, with it, the inherent problems of people and asset performance. In addition, senior management has asked Jim to take out a substantial amount of dollars from his operating budget.As Jim looked for ways to trim his operating budget, he asked an industry leader for ideas on how to cut costs in the area of indirect materials. The company submitted a plan that would reach Jim’s goals, but would change the way parts are supplied to plant maintenance and facilities. The ROI (return on investment) proposed was real and substantial. Objectively, the reason to change was a “no brainer” since the supply chain would be streamlined with the effective savings accruing to Jim’s company.

Why, then is there is no movement? No decision for six months and counting? Why hasn’t Jim moved forward and implemented the obvious savings?

It has a lot to do with time. It is acknowledged that the proposed change will produce value; however, the perception is an arcane vision of the time necessary to implement the change.

People in operations are already at capacity to keep production moving out the door.  The elongated day is filled with keeping up with plant needs; there is no time to stop and implement even though the supplier has shown that implementation is the supplier’s responsibility.

Production is reaching plan; however the plant is required to cut costs. Jim’s team thinks: “Well, we must forego the savings because of time constraints and the fact that we know what we have already. The change is just that–a change–which contains a level of the unknown.”

Here is the value of purchasing: The proposal was made to operations (as requested) with no purchasing involvement. Purchasing’s goal is to save money; with purchasing’s involvement in the implementation process, the change can occur and be measured.  Plant operations receives the benefits without taking time from production concerns.

Even though the parts under consideration for the program may not be included under purchasing’s venue, purchasing should be involved because the value affects total plant performance. As each month goes by, the company experiences lost opportunity cost which cannot be recovered.