Eric’s phone call to his boss went about as well as his visit to Patrick’s office. The young engineer knew his A-game hadn’t been good enough and was still reeling from getting checked by Purchasing. “Pick yourself up off the ice and get back to work,” Eric’s boss said. “Go talk to that company Elasto Proxy and get some answers to Patrick’s questions. Otherwise, you can forget about switching vendors.”
With a cup of coffee in one hand, Eric dialed Jenny-Lynn, his Elasto Proxy solutions provider. She picked up on the first ring and could tell by Eric’s voice that the young engineer had been through the wringer. Eric explained that he needed gasket prices and minimum order quantities (MOQs). Then he took another sip of coffee, paused, and asked if buying a gasket was really just about knowing these two numbers.
“No, it’s not,” Jenny-Lynn told the engineer. “Price and MOQ matter, of course, but your company also needs to think about true costs and manufacturing waste, especially with all of the rework you’ve been doing. Has anyone spoken to you about this before?” Eric couldn’t remember learning about this in any of his engineering classes, and price rather than true costs was his company cared about.
“True costs are the full scope of your manufacturing costs,” Jenny-Lynn explained. “Let’s keep things simple and stick to labor and materials. Labor is not just about the labor cost of the installer. It includes the cost of ordering, receiving, inventorying, and then delivering gaskets to the assembly line. There’s even a cost to maintaining vendors and inspecting the quality of gasket installation.”
Eric took another sip of coffee and asked Jenny-Lynn to continue.
“With your material costs,” she added, “it’s not just about installation either. Your true costs include material waste, such as when an installer makes a mis-cut and then discards a length of rubber. Here, it’s worth talking about MOQs – something you mentioned before. Buying more material than you need isn’t a good business strategy,” she added.
“That’s for sure,” Eric agreed. “When I met with our Purchasing Director, he told me he didn’t want a bunch of excess stock laying around because it ties up cash.”
“What else did say to you?”, Jenny-Lynn asked. “I think it would help to know all of his concerns.”
“Well,” Eric continued, “he got pretty upset about stock-outs. It wasn’t even the gaskets that bothered him, but all of the other rubber and plastic parts that he can’t get.”
“Interesting,” Jenny-Lynn said. “It sounds like your Purchasing Director has some real headaches. Did he mention any of the eight forms of manufacturing waste? They’re transportation, inventory, motion, waiting, over-production, over-processing, defects, and unused knowledge”.
“Whoah,” Eric laughed. “I liked it better when you talked about true costs and how they relate to labor and materials. This is all new to me. Still, manufacturing waste does seem like something that Patrick our Purchasing Director would understand. He’s the kind of guy who keeps aframed business school diploma on his wall.”
Now it was Jenny-Lynn’s turn to laugh. “You don’t have to be a B-school grad to understand this stuff. It still comes down to labor, materials, and manufacturing overhead – if it’s OK to introduce another term”.
Patrick said that it was and asked her to continue.
“With some numbers from your Operations Manager,” Jenny-Lynn continued, “ I bet you could convince Patrick to look at your company’s true costs because he seems like a guy who doesn’t like manufacturing waste – even though he’s part of the manufacturing overhead.”
“I’m not sure that Patrick likes much of anything,” Eric quipped.
They both laughed.
“Look,” Jenny-Lynn continued, “I’m willing to work with you on getting the information that you need from Operations. Would you commit to setting up a meeting with your Operations Manager and inviting me to it? We can do a video call – it’s something we do a lot at Elasto Proxy.”
Eric put down his coffee cup and smiled.
“Let’s do it,” he said. “I’ll set up a video call with Olivia. She’s our Operations Manager – a tough lady, but also fun to work with.”