A customer recently questioned our advice of going to bulk packaging for his mig wire. He stated that paying an extra $0.10 per pound was the complete opposite of what he wanted to do. We explained how spending a little more per pound would translate into significant savings for his company.
Typically the bigger the package the lower the price. This is why stores like Sam’s Club and Costco appeal to the public. However, when it comes to welding wire this is true only to a point. As you go from a 2# spool all the way up to a 60# coil the price per pound goes down. But when you start looking at a 500# drums the price goes up. This is because winding wire into a drum is a much slower process than spooling into a coil. The wire gets wound with a twist so that it can come out straight. This is because a drum just sits on the floor and is not spun like a spool.
Our customer uses roughly 95,000 pounds of wire per year and has 15 welding stations. He pays $1.75 for .045 wire in a 33# spool. The quote he received from his distributor for the same wire in a 500# drum was $1.85. So his yearly spend on wire would go from $166,250 t0 $175,750. A $9,500 dollar increase!!! We must be crazy to suggest this he though. So after spending a couple of hours on the floor doing some time studies we showed him the following spreadsheet.
As you can see the savings come from fewer changeovers. Changing out a drum takes longer, but you do it less often. The next concern was the cost of having 15 stations carry 500 pounds of wire instead of 33 pounds each. The owner explained that having 500 x 15 = 7,500 pounds of wire on the floor at $1.85/lb would tie up $13,875; while having 33 x 15 = 495 pounds at $1.75/lb only equals $866.25 of in-process inventory. So we asked what his cost of capital was to calculate the true cost of the added inventory. The result? Nothing to worry about, only about $500 a year.
We also included the cost of adding a payoff kit to the drums. Some new bulk packages have this payoff kit integrated into the top lid and this $100 per station would go to zero. We showed him that in year one he would save $15,000 based on his labor & overhead rate of $45.00. At this time the customer is in month three of implementation and the savings are already being realized.
Have you gone from spools to drums or vice versa? Which do you prefer?