Giving new meaning to Penny Wise and Pound Foolish

At a recent consultation for a prospective client I took notice of an item that was identified as “documented savings”. The item was a film for vertical baggers. This company used approximately 10,000 pounds per month. I asked for a sample of the film and obtained the spec’s and purchasing history from their system. I was immediately able to show my client where their buyer has lost the company at a minimum $120,000, however it was recognized by the company as a $60,000.00 savings. It could be happening at your company and you would never know either.

First the data: The purchasing notes in the company’s system showed the film spec at a thickness of 2mil. The notes also showed the past vendors price of $3.00 per pound and the new vendors price of $2.50 per pound. A $0.50 per pound reduction is indeed significant over a year. Unfortunately the much too often mistake of buying on price ended up costing the company almost 3 times of what they thought was saved. How? No one at the company measured the films mil thickness when it arrived; the film received measured out as 3mil. A practice some film companies use to overcome price objections. When presented with this discrepancy my clients response was: “We paid for a thin film and received a thicker and better film for the same price? What’s the problem?”

Here’s the problem: For every 1,000 pounds of 3mil film they were yielding 22,000 lineal feet less than if it were the 2mil film. Over the course of a year that is 2.6 million feet of film, or 58,000 pounds. At $2.50 per pound, this purchasing error just cost my client $120,000 in the past year! This doesn’t even include incorrect production waste factors and miscalculated commission payments on cost of goods sold.

Company’s like mine save manufacturers, processors, and copackers money. Our knowledge of materials, manufacturing, and industry practices benefit our clients. We consult, procure, manage, and distribute packaging materials to our customers on time and at reasonable costs. Everyone from our front office to our dock door are continuously educated on all materials that flow through our facility. Our first consultation is free, however your company may walk away with money like the example above; and yes they signed a contract within two weeks.

Don’t be Penny Wise and Pound Foolish. Allow my company to procure your packaging materials and your company can focus on producing and selling quality product.

Thanks for reading.

Michael O’Keefe
Vice President of Sales
Pioneer Packaging Chicago
Consulting Procurement Distribution
Tel. 630-348-3118
Email. mokeefe@pioneerchicago.com

Samurai Initiatives

Back in the day when Lean Manufacturing reached its peak and Six Sigma was the next brass ring to grab on to, I was asked to provide simple words of wisdom, which were called Samurai Initiatives, to manufacturers that didn’t want to reinvest in the Green Belt and Black Belt certifications. The focus of Lean Manufacturing and Six Sigma were much the same: employee accountability and production efficiency. I was recently sent a packet with copies of those Samurai Initiatives from a colleague that has moved into a COO position. With the packet was a nice note thanking me for these Initiatives and advising me that they apply today as simple reminders of where to maintain focus. It was quite a compliment for a program last active over 10 years ago. Below, I have shared a few of my favorites. These are even more critical today as companies purchasing departments spent the past few years trying to get blood from a rock.

SI: Determine the measure of financial performance, customer satisfaction, and internal malfunction; money, human resources, and time, respectively.
Improve those things that have the potential for the quickest return on these investments. A continuous improvement on measurable results is necessary.

SI: Profit is not dependent on the product alone, but rather on the level of efficiencies at which the product is manufactured.
Focus on taking costs out of the supply chain, not the supplier.n understand how your suppliers work and use those suppliers that bring solutions and value to the table.

SI: Focus on the costs out the back door; they are of greater importance than the price of products coming in the front door.
Automation improvements will increase speed and efficiency, reducing the cost to your customer and increasing your company’s profits.

ECO Message Fail

This failed message is from Seventh Generation @seventhgen.  This is a combination of a failed message and a mixed message.  I am not exactly sure what the brand is conveying to the consumer.

Company’s Trademarked Tagline:  “Caring today for seven generations of tomorrows.” clearly stated on front of packaging.

Fail Part I:  Bag for their dishwasher detergent is made from a Polyester/Poly laminated structure that is not recycleable and could take those seven generations to decompose.

Fail Part II:  Logo for how2recycle.info is printed on the back of bag with the Do Not Recycle Logo.

Fail Part III:  When the consumer views the gallery at  how2recycle.info the first item shown is a HDPE bag that can be recycled.

Not sure what Seventh Generation was thinking on this one.  Obviously there was a number of areas where the communication broke down.

Ultimately, who is to blame?  Does the consumer really notice or care about the mixed message?

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Eco-Message FAIL. Who’s to blame?

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When a message fails to be clear to the consumer, who is to blame. This failed message from Good Foods Group Chef Earls Brand is a great example of an internal communication breakdown. It also shows how important the suppliers are in recognizing your message and assisting in its execution.

The message is clearly stated: Eco-Friendly Packaging, entirely compostable, plastic made from cornstarch.

The failure is also clearly stated: a Recycle symbol #1 PETE is clearly visible on the lid below the above statement. This lid is not compostable.

Who is to blame for this fail? Marketing, Sales, Procurement, Production, Supplier?

How does cash flow adversely affect operations?

Cash flow becomes compromised. The cost of inventory on a company’s floor (and books) becomes much greater. The days of buying out 90 to 120 days are no longer feasible; the cash on hand is just too important to daily operations and to commodities. The capital dedicated to a company’s packaging inventory cannot be utilized for expansion or current operations.

What will happen when a commodity cost spikes and the cash to buy in is not there? The banks will not respond favorably with an excess of packaging inventory on the books.

Companies must be open to new concepts in packaging procurement. By acknowledging procurement outsourcing solutions, companies can remove this function from their internal procurement team.

We advocate to anybody that doesn’t claim that their sole source competency is to purchase packaging, that they should outsource this function.

The economics of the solution are very compelling. All it takes is the willingness to put the status quo behind you and a bit of education.

How much does internal procurement actually cost a company?

To answer this, a company would have to first review the cost of the individual employee(s).  Wages, Optional Benefits (paid vacation, insurance, etc.), Required Benefits (FICA, FUTA, State UI, Workers Comp, etc.), and Expenses (phone, office, etc).

Then a company would need to review the cost of having multiple suppliers for materials. Areas of review to include: multiple shipments received, increased warehouse labor, an increase in the number of skus managed, and an increase in AP activity.

So does the cost outweigh the savings that internal procurement provides to the company?

When evaluating costs of internal procurement individuals/teams in regards to the purchase of packaging materials, outsourcing this role must be considered.  All of the above costs are transferred to the Procurement Outsourcing Company.  In addition, warehousing costs are reduced and cash can be redirected to capital improvements and operations.

Remove the  procurement function from an internal individual/team and outsource it to an experienced team of individuals whose sole source competency is the purchasing and management of packaging materials.

We ask our clients to review the economics of their situation, rather than the status quo.  The economics are compelling and will assist to determine the benefits received by outsourcing the procurement function of packaging.