Really? I did not know that! Tell me more!
Don’t we all know this by now? Needless to say I was a little disappointed when I saw this headline in Industry Week, one of my favourite publications in recent times as they usually avoid the obvious diatribe I expect from the WSJ (and used to expect from the now deceased Purchasing) and focus on the core issue, such as how to maintain quality and proven sources of supply in tough times.
There wasn’t a single sentence in the article that I don’t think we all know by now. We know cheap often translates into poor quality, lack of service, and all too often as of late, recalls. We know that production line downtime costs tens or hundreds of thousands of dollars. We know that moor Procurement needs to meet regularly with Engineering and they have to work together to maintain the necessary budget.
What we need is advice on how Procurement can stave off the incentive to “go for the lowest cost no matter what” when the top line design and production managers know that the associated costs of such a decision far outweigh the savings. We need some advice on how Purchasing can qualify the total cost and risk associated with a decision and show that “the 10% cheaper solution will in fact cost the company 10% more”. We need a discussion of cost modelling, optimization, and simulation that can be used to demonstrate the true total costs.
And when health and safety is on the line, we need the reminder that even the simplest of parts can spell disaster. Remember, it was a single O-ring that resulted in the Challenger disaster. That’s right, a single vulcanized rubber part brought down a Billion dollar piece of equipment. We can’t overlook quality, but until the cost of poor quality is quantified, uneducated business leaders will continue to do so. So let’s teach our buyers about cost modelling and optimization every chance we get. It’s the only way we’re truly going to end this view of relentless cost cutting as business as usual.