| Stories From the Book | ||||||||
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| Stories From the Book | ||||||||
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We had a problem with our whole purchasing process. I was convinced that a great deal of money was being wasted and would continue to be wasted into the future. We didn't even know how much money was being thrown away. I thought we had an opportunity to drive down purchasing costs, not by 2%, but something in the order of $1 billion over 5 years. A change this big meant a big shift in the process. That would not be possible unless many people, especially in top management, saw the opportunity, which for the most part they did not. So nothing was happening.
To get a sense of the magnitude of the problem, I asked one of our summer students to do a small study of how much we pay for different kinds of gloves and how many different gloves we buy. I chose one item to keep it simple, something all the plants use and something we can all easily relate to.
When the student completed the project, he told me that we buy 424 different kinds of gloves!!! Four hundred and twenty four. Every factory had their own supplier and their own negotiated price. The same glove could cost $5 at one factory and $17 at another. $5.00 or even $17.00 may not seem like much money, but we buy A LOT of gloves, and this was just one example of our purchasing problem. When I examined what he had found, even I couldn't believe how bad it was.
The student collected the gloves, literally all 424. He put each in a baggie with the price on it and the factory it was used in. Then he sorted the bags by division in the firm and type of glove. So you had big stacks of welding gloves that were used at all the different factories in each of our businesses.
We took all this and put it in our boardroom one day. Then we invited all the division presidents to come visit the room. What they saw was a large, expensive table, normally clean or with a few papers, now stacked high with gloves. Our executives would stare at this for a minute. They would say, "We buy all these different kinds of gloves?" Well, as a matter of fact, yes we do. "Really??" Yes, really. Then they would walk around the table. Most, I think, looked for the gloves that their factories were using. They could see the prices. They would look at two gloves that seemed exactly alike, yet one was marked $3.22 and the other $10.55.
It's a rare event when these people don't have anything to say. But that day, they just stood with their mouths gaping.
This demonstration quickly gained notoriety. The gloves became part of a traveling road show. They went to every division. They went to dozens of plants. Many, many people had the opportunity to look at the stacks of baggies. The road show reinforced at every level of the organization a sense of "this is how bad it is."
Through more research, again done quickly and inexpensively by one of our students, we discovered what some of our competition were doing. The "competitive benchmarking" was added to the road show. As a result, we were given a mandate for change. People would say "we must act now," which of course we did, and saved a great deal of money that could be used in much more sensible ways.
Even today, people still talk about the glove story.