The copying machine paper caper: where lowest price did not work - cost control - Business and the Environment

Business Horizons, March-April, 1992 by Charles Hammons

Much has been said and written recently about the concepts of continuous process improvement, statistical process control, and total quality management. As with most philosophies of this type, they are often quickly dismissed because other concepts have been regarded as the ultimate salvation for the industrial and economic community only to be exposed as charlatans. Without resorging to a flurry of academic jargon, I shall provide an example in which total quality management might have worked.

THE SCENARIO

The organization in question had undergone some rather difficult times, and its continued economic well-being was a major consideration. Employees showed concenr--or at least feigned concern--when discussing the organization's problems. After a series of meetings conducted by upper management, a directive was sent throughout the organization from the plant manager. Briefly, this directive stated that ". . . each employee is expected to make every effort to cut down costs in the organization. . . ." Each member of the purchasing department received a copy of the memo, along with a handwritten note from the manager to "tighten up the purse strings" and concentrate on items exhibiting the greatest cost savings potential for the organization.

Several days after the memo was sent out, the purchasing department agent responsible for ordering office supplies received a requisition for paper to be used in the office copying machines. Although the purchaser had always bought high quality copying machine paper from a particular supplier for a reasonable price, the memo prompted her to attempt to find paper at a lower price. She persued current catalogs and price lists and eventually located a supplier of copying machine paper who advertised a price that undercut the regular supplier by approximately $.003 per sheet. The purchaser, remembering the memo and the purchasing department manager's exhortations, placed an order to the lower-priced supplier and--with the memo and the exhortation still in mind-convinced herself it was a good idea to order twice as much ocpying machine paper as had been ordered in the past.

Several weeks passed. The existing supply of copying machine paper was running dangerously low. After many telephone calls to the new supplier, the purchaser was relieved to finally receive the order of copying machine paper at the organization's warehouse. Several boxes were distributed to the various offices equipped with copying machines and the remainder was stored in the warehouse.

As the organization began to use the new paper, problems with the copying machines began to occur. The new paper jameed in the machines more often than the old paper had. People were spending more time at the copiers removing jams, reloading paper, complaining to their coworkers about how terrible the copying machines were functioning, and griping about how the paper didn't seem to feed into the machines as well as it had before. On several occasions the copying machine repair service had to be called because the new paper became so jammed that employees dared not remove it for fear of harming the machines.

At the same time, various department managers were starting to hear complaints about the deterioration of the copying machines. The problems even became a common topic at breaks and lunch times. After several weeks, the problem became so great that it finally reached the plant manager. He first thought the complaint was the product of disgruntled employees who were using it as a means of resisting his cost-cutting measures. But as the magnitude of the complaints continued, it finally became a topic in a regularly scheduled management meeting.

Several ideas were discussed, but the action ultimately decided upon was to assign the respective managers of the industrial engineering and purchasing departments to investigate the situation and report their findings within three weeks. To investigate the situation thoroughly, however, would mean that the manager of the industrial engineering department would have to devote time he could not spare. Because of his overwhelming concern for cutting costs through the auspices of his department, the study quickly became the sole responsibility of the purchasing department manager. The purchasing department manager immediately assigned the problem to the office supplies purchaser, who only a few months earlier had purchased the lower-priced copying machine paper. The purchaser quickly saw that the paper, which had so recently appeared to be such a wise economical undertaking, was now creating problems.

An abundant supply of copying machine paper remained because fewer copies were being made due to constant machine malfunctioning. The purchaser had the idea of ordering a new shipment of paper from the original vendor, even though the price for that paper was somewhat more expensive than the last shipment purchased. To do that, however, the purchaser would have to get approval from the department manager. For that to happen, the purchaser would have to explain the order for the less expensive paper, the persisntent jams with the copying machines, the increased maintenance calls to the repair service, and finally, the warehouse containing about half a million sheets of practically worthless copying machine paper.