Insights on Excellence | "Insights on Excellence" Archive

The half-million dollar glove story

by Stephen Hawley Martin
for Virginia Business
April 26, 2006

Thanks go to Patricia Moody, author of The Oaklea Press book, "The Big Squeeze: Ten Ways to Cut 10% of Your Company's Expenses Right Now!" for this story about how one company found big savings in a file folder. Pass it along to your purchasing people to inspire them to be on the lookout for something similar that might be right under their noses.

An executive at John Deere had a summer intern that he was trying to keep busy. He gave her the assignment of digging into purchasing data to see what savings suggestions she might come up with. Unfortunately, no central database existed that would provide answers questions such as what items were purchased from which suppliers and how much did they cost over the life of many purchase orders? But the intern was persistent and creative. She found that by talking with key suppliers, as well as digging through accounts payable files, she was able to construct a pretty good picture of what the company was spending in different areas.

One thick folder in particular drew her attention. She took a close look and found that in a 12-month period, Deere's 15 North American plants had purchased more than 424 stock keeping units (SKUs) for gloves at a total cost of $1.4 million. That's more than 424 part numbers for a supply chain planner to track, schedule, receive, pay for and occasionally expedite.

Every order covered a different part number -- different sizes, materials, linings, palm configurations, colors. And the prices ranged from $6 per pair to more than $7.50 for the same glove. A discrete call to the supplier revealed an even more interesting fact. The same welding glove that Deere bought for $7.50 was also being purchased by a big yellow competitor for $1.50. Plus Big Yellow washed and sent the gloves out to the line for other uses after welding, while Deere operators ran to the stockroom for a fresh pair after each use.

John Deere's managers soon realized that their $7.50 custom solution was overkill. You might say it was cash thrown into the trash at the end of every shift. Planners came up with a simplified solution. They estimated that instead of 424 SKUs, Deere production could easily "make do" with only 25 varieties for an immediate savings opportunity of 35 percent, or about a half million of the $1.4 million being spent on gloves.

Imagine that. a half million dollars to the bottom line because a college intern spotted a fat file of invoices for gloves. Just think what the pros at your company might save if they are given the direction and an incentive to do so.

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Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.