Technology Consumables: Saving Money by Optimizing Your Supply Chain

Originally published in the Denver Business Journal, July, 2005

Technology products permeate today’s office environment. The fact is every business needs technology in order to operate efficiently. Certain technology devices – ranging from mundane printers to more critical storage devices – require replaceable items, or consumables, to operate.

The supply chain for technology-related consumables is terribly fragmented leading to unnecessarily high costs for even the most basic of items. Understanding how to navigate these tumultuous supply chain waters can result in substantial cost savings for businesses of all types and sizes.
INVENTORY

BILL DOUGLAS
These consumables consist of various items including printer consumables (ink and toner refills, drum kits, etc.) and storage media (tapes, CD’s, DVD’s, etc.), often purchased ad-hoc and “under-the-radar” of a professional purchasing agent.

Running out of any needed item can be expensive. This costs your company not just in the increased price of the product hastily bought from the nearest store or shipped overnight but in non-productive time, especially if anyone must leave the office to get needed items. More importantly, any loss of revenues due to reduced service is terribly costly.

If it is not doing so already, your company should formulate and execute a strategy to reduce the cost of technology consumables. Why? Implementing a controlled stocking program will pay off in the long run by reducing downtime, operating expenses, and total acquisition costs. A simple analysis should reveal that any carrying costs are far less than the costs of downtime, production, or revenue losses.

With the goal of reducing both price and cost while diminishing downtime, let’s walk through the steps to achieve successful results.

First, consolidate your consumables. Identify the exact products purchased in the past two quarters. Involve both users and the IT department to decide if similar products can be standardized. Determine the economic order quantity and reorder point for all key items.

Specifying original printer cartridges is highly recommended. In a recent reliability comparison study by QualityLogic, original monochrome toner and black inkjet print cartridges were nine times more reliable than leading remanufactured brands, and original color inkjet print cartridges were more than 50 times more reliable than leading remanufactured brands.

Second, leverage your total spend with the appropriate supplier(s). Reducing your supplier base can result in considerable cost savings. Employ to your advantage the data derived from the consolidation process described above.

The extensive supply chain for technology consumables is very fragmented. Two primary distribution channels exist (technology and office), differing extensively in pricing schemes, shipping costs, marketing programs, distribution facilities, stock levels, fill rates, etc.

To maximize benefits, seek a strategic supplier that openly discusses the entire supply chain, including its channel strategies, strengths, and weaknesses. Take the time to fully explore all of your alternatives before determining what is best for your company.

Structure a supplier agreement that addresses how new products will be priced because needs will undoubtedly change. Set specific goals and performance indicators for the program. Schedule regular reviews with your supplier(s) to include two-way feedback.


Third, develop the details and implement the program company wide. Set an inventory policy and infuse ordering procedures. Focus on minimizing inventory and increasing turns. Make the program information and procedures easy to access and easy to follow.

Keep the re-order process simple. It does not have to be complicated or technical. The process could be as simple as a sticker placed on each stocked item that reads “Notify Ms. Doe if you use the last one of these.”, or a spreadsheet to track inventory and place orders. Your chosen strategic supplier(s) may provide helpful systems at no additional cost.

Determine stocking locations and apply uniform naming conventions. Often many departments, users, and business units can utilize one stocking location, thus minimizing inventory and eliminating the common occurrence of each user keeping their own “stache” of safety stock.

Make someone accountable for the program. This person will be the champion for new ways to improve processes and reduce costs. Be certain to address all issues immediately. Management support of the program always increases success rates. Widely report the program’s successes throughout the company.

Work diligently to enforce program compliance within your company. The goal is to eliminate “renegade” purchasing. Individual employees purchasing outside the program will dilute your company’s buying power. Regardless of any perceived price savings, renegade purchasing increases actual costs and reduces program effectiveness.

Demand management and spend analysis are popular buzz-words in the market right now, but be cautious about their true costs. The reward for these programs may, for specific types of companies, be realized within direct spend categories but they are unlikely to yield valuable results for the indirect consumables we’re targeting here.

Finally, pursue other methods to reduce acquisition costs. Look at all the steps involved in buying a product: identification, requisition, order, receipt, reconciliation, and payment. There are many cost-saving opportunities in these steps. Be open to innovation.

Always ask questions! For example: If we consolidate suppliers, how much will we save by processing fewer orders and invoices? If we standardize printers to be these specific models manufactured by XYZ Company, can we consolidate cartridges and reduce inventory levels?

Get to know your strategic suppliers and ask them what they’ve seen successfully reduce costs for their other customers. Utilize resources from associations such as the Institute for Supply Management.

In summary, to reduce the cost of technology consumables:
1. Consolidate and standardize consumables. Set order points.
2. Quantify spend. Leverage your purchases with supplier(s).
3. Implement program and procedures. Measure and report results.
4. Continually optimize purchasing processes. Innovate.

Technology consumables have traditionally been purchased “as needed” and non-strategically, allowing the market to drive and keep prices up. By applying strategic procurement methods and striving for continuous improvement, your company will benefit from increased efficiencies and cost reductions.

Remember that price is not cost. Downtime is very expensive – it can and should be avoided. Do not be deceived by pricing or marketing schemes. Be an educated buyer, armed with data, and align with a strategic supplier. Your cost reduction program will be a success.

Bill Douglas is CEO of EssentiaLink, a leading supply chain fulfillment provider in Broomfield, CO. He can be reached at 720-259-4975 or bdouglas@essentialink.com.
Based in Broomfield, CO., EssentiaLink provides a unique supply chain fulfillment service that enables companies to procure a majority of their indirect goods from a single source, reducing both price and cost. The privately held company serves customers across the U.S.