Sometimes I like a nice flatbread sandwich for lunch. It’s at those times I will visit the local chain
restaurant that specializes in making that type of sandwich. That makes sense. Within the last year or so –I’m not sure
when, exactly- I noticed the cozy little restaurant no longer provided paper
napkins that customers could access themselves and instead started providing only
two napkins with your meal. Of course, I
suppose if you have a mishap prior to receiving your meal, you could ask and
they would give you more. No matter
what, it always seems like what they give you with your meal is too little and
too late. I am unsure if all of the chain has reversed this napkin rationing
policy, but the one I most recently visited appears to have. I am also unsure if this policy was related
to cost savings, but it seems to me like it could be. So in the spirit of hearsay and conjecture, I
decided to utilize it as an examination of cost savings goals during strategic
sourcing initiatives.
During costs savings initiatives, the focus is on the
numbers: timeline, resource allocation, one-time and ongoing costs, etc. It is
easy during this analysis to lose focus on what will actually work for the
organization and more importantly, what can be sustained. This is particularly important the more
granular you get. It’s simple to become
pennywise and pound foolish, as they say.
So saving that extra one percent of cost at the expense of quality or
even usefulness is often not worth it.
For example, sometimes I need more than two napkins. And sometimes I need napkins before my meal
arrives (I can’t help it). And
sometimes, I even need more than two napkins before my meal arrives (It was an
accident!). So sometimes, being rationed
napkins is annoying. In this case,
probably not annoying enough that it decreased the frequency at which I visited
the restaurant, but for some people it might have been.
So on paper napkin rationing seems great. Let’s say an average customer uses five
napkins per meal and rationing limits consumption to two and a half. Fifty percent savings! But what if this new policy really is
annoying enough to keep customers away, even a little bit? It is probably not worth it. In the same way, suppose there are corners to
be cut, or quality requirements that can be overlooked in order to improve
savings. The risk of foregoing those
requirements is an unhappy internal customer (not enough napkins) or an
internal customer who does not have what they need to be productive (no napkins
before the meal). Not only can this impede
process, it can bleed into other areas in a sort of “butterfly effect” manner,
snowballing into a much bigger issue.
Not only is there a potential for issues in process, the cost of change
to adopt these changes along with the cost of change to “go back” or move to a different
approach to solve the problem can sometimes negate savings or end up costing
more in the long run.
A careful balance between quality and cost needs to be
established during any strategic sourcing initiative. In order to ensure the initiative is
successful, and that decisions around cost savings make sense for the
organization, quality concerns and process changes need to be evaluated
carefully and factored into the overall analysis for consideration before
making a decision. For help identifying
areas for potential cost savings, building requirements, and strategic sourcing
to obtain savings and improve process, visit www.sourceoneinc.com
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