HVACRDB

Five Ways to Reduce Cost without Cutting Price

Many a salesperson has heard the news, "I am being told by our corporate people that I have to cut the cost of maintenance supplies by 5 percent." Without some quick thinking, this can easily be translated to, "You need to cut your price by 5 percent." Or, "We are going to start shopping all of your prices." This is especially true if you haven't done a good job of establishing a value for the service you have been providing.

You can immediately start back-pedaling. You can start talking about the long relationship you have built over the past years. If you have been doing something besides buying doughnuts for a bunch of the good old boys down at the maintenance office, you can start talking about your past (yet unmeasured) service.

The competition probably already offers many of the same things as you. Here's a quick check list:

- Knowledgeable Salespeople
(Do you think any company really sends someone out who says, "Hi, I don't know anything?")
- Delivery
(With the exception of some of the e-Business type guys, everybody has delivery.)
- Credit
(Who doesn't offer credit of some kind or at least take credit cards?)
- Inside Support
(Another one that's hard to measure. Nobody says, "We pick up our inside people down at the wino bar.")

Now let’s talk about some of the good stuff; stuff you can sink your teeth into. All of these are areas an MRO purchasing manager would be foolish to ignore. All produce measurable dollars. Most of these are things you normally do, or could do with little or no extra cost to you.

Maximize Warranties
Each year, our customers buy thousands of dollars of products that are covered by warranty or which warranties could cover. How does this happen? Busy maintenance people throw questionable parts and products away. The customer hasn’t studied the warranty policy. Or the customer doesn't know how to determine the warranty.

Here are some examples:

Hand Tools -- Many of these have a lifetime warranty.
Proximity Switches – Lifetime warranties are the norm.
Electrical Products -- 18 months (12 months in customer / six months grace period).
Advanced Electronic Ballast -- often covered under warranty.

Each time a warranty is used a savings is generated. Compile a warranty list and use it to record the values of product replaced or repaired for under warranty. To begin the process, I suggest that you create a spreadsheet with companies and their respective warranty time for your personal reference.

Repair vs. Replace
Many items are routinely replaced that could just as easily be repaired. Electronic devices come to mind, but the list can include some other products where a skilled person could easily make an evaluation and determine the proper action.
Extension Cords -- are they repairable? (Also see above warranty info)
Electronic Boards of all kinds.
Solenoid Valves -- moving parts can be replaced.
Electrical Motor Starters – contacts and coils are easily replaced.
Lighting fixtures -- ballast bad? Is the whole unit being scrapped for that reason?

Position yourself to serve as the watchdog for repairable items. Log the value. How much can you eliminate from the “waste stream”? Each of these items represents not only a measurable savings in the repair vs. replace equation but often represent savings in land fill charges. Printed circuit boards and other electronic devices often require special care in their handling and disposal.

Proper Inventory Levels

Is the plant keeping excess inventory in their crib? This is true in many instances. For example, does the plant have a stock of twenty 30 Amp Fuses? If so, in the case of an emergency, how long would it take for an emergency delivery to arrive? Often, the plant is only minutes away from a large supply kept on your own shelf.

When evaluating inventory, it is important to note multiple types of savings. I have listed some of these for you to discuss with your customer. Be sure to take credit for all of these savings.

Cost of inventory this is the product
Cost of carrying the inventory this is the interest charge
Cost of shrinkage, inventory control, etc. this is real stuff and can't be left out
Cost of insurance what happens if there's a fire?
Cost of shelving/material handling these cost money
Cost of floor space in the plant especially if the plant is running out of space


Again, logging the total savings is the key to claiming this activity as a “real live and completely legit” savings.

Energy-Related
The whole world has been struggling with the rapidly rising cost of energy. There are a number of things that you can do to ensure measurable savings. Here is a short list.

Energy Efficient Lighting Walk-through
Energy Efficient Motor Survey
(We don't sell motors, but we can still line up the experts.)
Energy-saving fans re-circulates the heat
Automatic Door Closers

With our high gas prices, everyone is thinking about energy. Provide recommendations and, more importantly, keep records of how much energy you saved related to the cost of kilo-watt hour and the cost of any steam, diesel or heavy oil.

Standardization
Is the customer using the right product? Or, are they using a "Cadillac Line" when a "Chevy" will do? Can we show the customer where there is little if any difference between two manufacturers' products? Another aspect of standardization is the trilateral negotiations we can guide the plant through to gain price or other concessions. Some ideas:

NEMA vs. IEC designed electrical devices
Fiberglass vs. Stainless Steel Enclosures
Sensors

Most companies calculate annual savings. To do this, you need the annual number of parts used each year and the saving per item. Log the difference.

What were you doing Jan. 23rd, 2005?
Log the savings you provide! You provide the greatest service in the universe. You have a team of savings specialists who comb the land looking for ways to save your customers money. You even understand the importance of measuring your service in the most universal metric of human endeavor, money. But I ask again – what were you doing on January 23, 2005? If you don’t keep a detailed journal, chances are you don’t know. By the same token, if you don’t keep a detailed log of savings provided, you won’t remember. The log can be simple and easy. A MS Excel worksheet with a single spreadsheet for each customer will work. A full feature software package is available from several companies to assist in measuring and logging your value.

In Closing
Provide service. Measure the benefits of your service in dollars. Record these value-add events for later reference. And, next time you hear the statement, “I am being told by our corporate people that I have to cut the cost of maintenance supplies by 5 percent,” you’ll be ready to sell.

Frank Hurtte and River Heights Consulting are dedicated to helping distributors achieve more for their efforts. Frank has developed a very unique approach to thinking about Value Measurement. Contact Frank at 563-514-1104, [email protected], or visit www.riverheightsconsulting.com.

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