How Do You Put "Cost Containment"
into Your Next Containment???

Tony Jones* of ABC Manufacturing was recently overheard lamenting to his friend over a couple of drinks. "These sorting companies are REALLY gouging me. I just got their bill for over $400,000 for sorting a part that cost us $300,000 to build! We have only a few bad parts in the whole shipment, and then I'm forced into sorting, at high rates, with open-ended invoices. Nobody asked me for my approval ahead of time. I feel like I'm really over the barrel in this situation and I'm not sure what to do. "

Does that sound familiar? The cost of sorting and inspection is like a hidden tax for manufacturers, much like the situation that sparked the Boston Tea Party,where the British didn't ask, but just taxed and taxed the colonists. But the real problem with containment and mandatory sorting is that you don't get to protest, and you can't dress up like an Indian and dump all the tea in the harbor. You can't start up the American Revolution like the colonists did, even if you really feel like doing it.

Sorting is like a tax that you can't anticipate and you can't control. You just end up having to pay and pay. And every day that goes by costs you more and more money; often with no end in sight.

So, how do you put "cost containment" into your next containment???

Once you are into a sorting situation it is often too late. The solution is to be pro-active. Be prepared before there is a problem. And lets face it, in today's manufacturing world the real question is not "will you be into sorting" but "how soon". The time to take action is now.

The first thing you need to do is perform standard supplier development activities with at least three Sorting and Inspection Houses. Find two in your area and then look for one slightly outside of your area that is aggressive and willing to work for your business.

Visit all three houses. One would expect cleanliness and quality procedures to be standard in these types of operations. If they are not, simply cross that supplier off the list and find another one.

Look at the age and experience of the management and the workers. Expect the staff to be experienced and professional.

Now look at the size of the supplier. A large house will have many bells and whistles, but you will pay for these. A smaller house often will not have an extensive equipment list, but may give you more personal service. Only you can decide what level of service you need and what you are willing to pay for. One doesn't go to intensive care to get a splinter removed!

Now it's time to look at the company's billing practices. This is key in keeping your costs under control. Will the company quote a per piece price or are they strictly hourly? If they do bill hourly, will they guarantee a certain number of pieces per hour? If they exceed the number of pieces per hour will they give you a rebate or share some of that cost savings with you? Also find out how open they are with their billing. Are they willing to share exactly what they are charging and who did the work they are billing for?

Lastly, look at what the company does to help you out of containment. Some companies make the bulk of their money on sorting and do not benefit from getting the supplier out of containment. It has even been said that some unscrupulous operators will hold back a defective part found on day one to throw in to the mix on day 29, ensuring they will have 30 days more sorting work. It is sad to say that "salting" your inventory is good business for some Sorting Companies.

You also may want to look for a Sorting Company that has a strong engineering division with capabilities to perform root cause analysis. The company's engineering resources will help you get out of your containment situation quickly and ensure that the original problem does not recur.

You don't want to get hooked up with a Sorting firm that only profits when you, the manufacturer, lose. Otherwise it's a bit like hiring a mechanic who never really fixes the problem with your car. The mechanic stays busy, and you just keep paying and paying.

Once you have found a Sorting and Inspection Firm that does quality work at a fair price, you have much more control over your situation. The more you use the firm, the more familiar they become with your products and quality issues, increasing their efficiency and further lowering your cost. You can also use this house with your suppliers and save even more money. If your customer puts you into containment, you often can negotiate with your customer to be allowed to use your own sorting house, keeping you more in control of your costs.

We at Continental Quality Engineering (a division of Continental Design & Engineering) believe we would score well on all the above criteria. We would be happy to open our books and demonstrate to you how you can put cost containment into your next containment. Please give us a call at (765) 778-9999 and ask for Tom Epply or Bill Nagengast or email us via the email form below.

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