I have always enjoyed the gallows humor of the ``It's not my budget'' philosophy I get from buyers. This leads to some wonderfully misguided management decisions. Nevertheless, perhaps now is the time to point this out to your customers.
There has been a lot of complaining about going to China. Undeniably, molders there manage to underbid U.S. molders. However, let's give this whole idea a sanity check. If cost is king, let's make sure the king isn't nearsighted. Remember JIT - the supply chain philosophy du jour? What happened when you had to fill an international freight container with one order? Your customer bought a three- to six-month supply; what happened if there were rejects? The beauty of JIT had to do with using factory space to make stuff and not warehouse raw inventory. Did your clients ever stop to calculate the true cost of storing that inventory?
Have you seen the current hoopla of Six Sigma warlords and lean manufacturing to optimize pricing - today's productivity philosophies noir? Do Chinese manufacturers follow these philosophies or did they simply ``lean'' them down to Warlord Management by way of predatory practices? Did the buyer do his homework or did he simply have a wonderful paid vacation when he went to the Orient?
Has anyone looked at purchasing agreements lately, specifically the part that starts with FOB? Who pays for freight? Is it part of the part price, or does the client pick up the tab separately? When you find the ``landed'' cost of a product from China, you magically find that 85 percent is the purchase part price and 15 percent is freight. With the cost of fuel going to record levels, do you think freight costs will go up also? Yup. That means the landed price goes up, with freight biting a larger percent.
Now let's put together the pieces: The initial cost of the product, plus the cost of money (having to purchase large non-JIT volumes), plus the increased cost of freight, plus the cost of storage divided by the purchased volume equals the landed cost of the part. Divide this cost by the risk (frequency) of a non-Six Sigma reject and you have the true cost of the part. If you can convince your customer who took the job from you and placed it in China to look at these costs, he'll probably find working with you a bargain.
For a parts buyer, even though his firm is paying the total cost, he will tell you it is not his budget (his bonus or his paycheck). For him, purchase price and not total cost is still king. Go figure.
You'll have to send this to your customer's upper management, whose bonus is a function of company profit, before you might get someone's attention. At least it's worth a try.
Tobin is owner of WJT Associates Inc., a plastics consulting firm in Louisville, Colo.
