Vendor Relationships Lead to Cost Savings-One Case Study

This case study concerns working with a vendor and turning a price increase into a price decrease. As the head of the purchasing department I was presented with a three percent price increase from our supplier for PVC rolls. At that point in time our purchases totaled approximately two million dollars annually. I told the salesman on our account with who I had an excellent relationship that we are not in a position to accept price increase since our customers who were the major retail chains are not and will not accept increases in costs. So I gave him the challenge of seeing how we can avoid the price increase and told him we were open to any and all suggestions and ideas. After two weeks the salesman returned with a proposal that turned the price increase into a price decrease if we could accept 500 yard rolls instead of the 125 yard rolls we now received. I told him we could not physically handle the 500 yard rolls and I brought in the plant manager into the conversation since we were now talking about approximately $100,000 per year in savings on how we could make this work. He said if we could lift the rolls with a piece of equipment he would accept the roll size change. I had already told the salesman that this was going to be an issue and he had already agreed to pay for half of the equipment which meant our outlay for the equipment would be approximately $1500. I also negotiated a list of exception to the new 500 yard size for the colors of vinyl that did not warrant that size roll and negotiated a lower minimum run for these colors. The end result of this process beyond the savings in cost to the company were lower labor costs since the person who sheeted the vinyl could now be more productive and we eliminated the part-time person and the overtime hours that had become a standard part of the process. The new size roll ended with additional yardage on each pallet which led to more available space in the warehouse. In conclusion working with the vendor and keeping an open mind and thinking outside the box led to an annual saving of over $120,000 in total when the labor savings and efficiencies were added in.