A few years ago, I was head of the purchasing department of a major corporation. One of our suppliers presented us with a 3% price increase on rolls of PVC (industrial vinyl). At that time, our purchases totaled approximately $2 million annually.
I told the salesman on our account, with whom I had an excellent relationship, that we were not in a position to accept that price increase. Our customers were major retail chains, and they would not accept increases in costs. So, I gave him the challenge of seeing how we can avoid the price increase and told him we were open to any and all suggestions and ideas.
After two weeks, the salesman returned with a proposal that turned the price increase into a price decrease if we could accept 500 yard rolls instead of the 125 yard rolls we then received. I knew we could not physically handle the 500 yard rolls, and brought the plant manager into the conversation since we were now talking about approximately $100,000 per year in savings. He said if we could lift the rolls with a piece of equipment (I already anticipated this would be an issue), he would accept the roll size change.
The vendor agreed to pay for half of the equipment costs, which meant our outlay for the equipment would be approximately $1,500. I also negotiated a list of exception to the new 500 yard size for the colors of vinyl that did not warrant that size roll, and negotiated a lower minimum run for these colors.
The end result?
Beyond the costs savings to the company, we also saw lower labor costs, since the person who sheeted the vinyl could now be more productive. We were able to eliminate another part-time person and the overtime hours that had become a standard part of the process. The new size roll ended with additional yardage on each pallet, which led to more available space in the warehouse.
In conclusion, working hand-in-hand with the vendor and keeping an open mind led to an annual saving of more than $120,000 when the labor savings and efficiencies were added in.
