Wednesday, April 16, 2008

The cost of cutting cost

My company is voracious about cutting costs. If they can find a way to do something cheaper, they will jump at the opportunity.
I get a unique perspective on the situation because I sit near the supply cabinets. Ordering office supplies is one place where the company is very aggressive on cutting costs. Our administrative staff works hard at finding opportunities to spend less on office supplies. The quality of our supplies are not great. Actually, I find that I have better luck using the pens I bring in from home. They also don't get the engineering paper that I like. They get regular paper and the cheapest stuff they can get.
I like the engineering paper so much that I'll buy it in bulk. I actually had a bit of trouble getting some at the local office store that I ended up buying a bunch from Amazon.
The admins have also figured out that if they lock the facial tissue in a cabinet and only give out boxes to those who ask that they order facial tissue less.
Has that really saved money? We're spending less on our non-Kleenex, but we're asking people to spend more time getting tissues. Instead of grabbing a couple of boxes when they're at the supply cabinet, now people are either not getting it, or spending a chunk of time working with the Admin to get a box.
Did I mention that most of the people on my floor are software engineers and contracting software engineers. On average I would guess that the hourly cost of one of us is around $100. That's $1.67 a minute. The Admin's office is a good 2 minute walk from the supply cabinet. You can count on about 2 minutes of chitchat with her also. So round trip you're spending about 6 minutes.
That extra trip to the Admin's office is going to cost around $10 per box of facial tissue.
Nobody is tracking this cost, but it's happening.
A big part of the problem is that opportunities to cut cost are identified in isolation to their effect on the whole system. It reminds me of people with gambling problems. If you talk to one of them about their weekend they'll tell you that they went gambling and won, say $1000. What they don't tell you about is the $4,000 that they lost.
A problem gambler will look at their gains in isolation to their losses. In the same vein, some organizations look at their cost cutting measures in the same way.

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