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Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard,
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

The American Purchasing Society is serving the demands of the supply chain professions with its new Certified Professional in Distribution and Warehouse Management (CPDW).

According to the Society’s site, this professional designation is open to any supply chain pro. The CPP is not a requirement and there is a separate application . The requirements for the CPDW are three online courses and an examination. The courses may be taken separately or through the CPDW prep course.

The three courses are

Once the courses are completed the CPDW examination must be taken and passed with a grade of at least 75%.

Why is CPDW important to buyers?

forklift_logoIn my consulting and training practice in our profession, the overlap of purchasing with inventory, warehouse, and logistics responsibilities is extensive. Many purchasing departments manage these departments and are in need of reliable education & training resources to help.  Here is how the Society is the source of choice for CPDW.

Distribution and Warehousing   This course is Part 1 of the CPDW Exam regime. It teaches principles of warehousing, related functions, types of facilities, as well as warehouse design and space requirements, equipment, operating activities, locator systems, and product identification.

Inventory for Distribution and Warehousing   This course is Part 2 of the CPDW Exam regime. It teaches many aspects of inventory and how they relate to distribution and warehousing functions. It covers types of inventory, types of controls, record keeping, item identification, locator systems, RFID, counting methods, and much more.  Although this course emphasizes how inventory relates directly to distribution and warehousing, purchasing people who have already taken Managing Inventory – Maintaining the Proper Level do not need to take this course in order to be awarded the CPDW. Part 1 and 3 are still required, and the exam must also be passed.

Management Operations and Logistics   This course is Part 3 of the CPDW regime. It teaches management operations and includes information on its purpose, duties, decision making, organizing, staffing, planning, controlling, and more. Other areas covered are management psychologies, human resources and the law, transportation and logistics, domestic and international transactions, and ERP.  Anyone who has taken Management Operations and Logistics will be given credit for having completed Part 3 of the CPDW.

Let me know of your success.

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard,
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

On Wednesday, 22 June 2016, I again have the good fortune to serve the International Sign Association with a workshop talk at its Converge meeting in St. Louis.  The ISA, as are many other industry groups, provide a “Purchasing Track” because members and suppliers like recognize that purchasing is the single most efficient generator of profitability in all of business.

Last year in Denver, the topic was “How Buyers Think, Decide, and Act”. It went so well that this year, we have decided on Purchasing, Law and EthicsYou’d Be Surprised!

You may think, “Ugh, that topic sounds boring”If a professional speaker cannot make the material come alive, demonstrate relevance and value, and entertain you in the process, he or she needs to find another line of work.  At the magnificent Four Seasons Hotel in St. Louis, the Gateway to the West, ISA sponsors this workshop that serves both purchasing and sales pros.

Here are some questions we will discuss: (HINT – study up cuz there will be a quiz or two)

  1. Is it illegal for a buyer or seller to be dishonest in negotiations?
  2. Is it illegal for the buyer to tell the supplier what the price needs to be?
  3. Is ethical behavior required, suggested, or not mentioned by the law.
  4. What is or are the UCC?
  5. What is or are the CISG?
  6. What is the significance of the Robinson-Patman Act for buyers and sellers?Legal Vs. Ethical
  7. When is a gift to a customer a bribe (Hmmm)?
  8. Is a written contract required for the purchase & sale of goods?
  9. Can a buyer ethically divulge an incumbent supplier’s price?
  10. Is the price term necessary for the purchase & sale of goods?
  11. Define “goods”.

If all your answers are correct, you need not attend.  However, the next one who gets all answers correct will be the first!  None of us are born knowing this stuff.

Embarrassing Anecdote 

Upon reaching a negotiation impasse many years ago, I told a bright sales woman that, “I be Tarzan, you be Jane.” Jane politely ignored my flaming ignorance and instructed me how acceding to my request would put us both in legal jeopardy with Reciprocity law.  I did not even know what Reciprocity was!  We still remain in touch as she helped save my “bacon”.  That lesson remains with me as do the painful memories of other similar legal and ethical gaffes.

Speaking of saving bacon, look at the little piggy to the right. As a sales pro, did you ever make the colossal mistake of asking, “Where do I have to be?”  Where do I have to be For the purchasing brethren, have you made the colossal mistake on the opposite side of the desk?  Did you get a little clever by suggesting a target much lower than competitors?  Did you indicate a range? Do we all realize that we are committing a crime when we engage in this behavior?

What will happen in the workshop?

The presentation will be energetic, humorous, and encouraging of your participation. Come prepared to do most of the work because interacting with fellow pros produces the best results.  We will do several exercises and quizzes in small teams.  You will record your input on flip charts and I will take your work with me so as to produce a post workshop report that ISA will distribute to attendees about 30 days after the event.

Each participant will receive a copy of You’re the Buyer – You Negotiate It.  You’ll also be receiving a Report on the session by the end of July.

See you in June at the sumptuous Four Seasons hotel in the fabulous town of St. Louis, Gateway to the West

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

A favorite energy writer is James Osborne at the Dallas Morning News.  In a Christmas Eve 2015 story , Osborne cites a U.S. Energy Information Administration (USEIA) report that states that in April 2015, less electricity came from coal than natural gas for the first time since at least 1973. That trend repeated in July and continued through October and may do so for a while longer do to the 40% drop in Natural gas prices over 2015.

How does price of fuels affect electricity

The answer seems like it should be straight forward. Most evaluations concerning energy and sustainability rarely are. The 11-Dec-2015, Central Appalachia coal price is $43.50 per short ton according to Quandl . Coal prices range from a high of almost $50/ton (short ton of 2,000 pounds as opposed to a metric ton of 2,206 pounds) but the Central Appalachia price is a common standard.  Correspondingly, Natural gas prices out at $2.37/MMBtu according to the Henry Hub, a common benchmark.  We cannot compare prices using different units of measurement so we must convert to a common unit.

In my 2011 book, Green Purchasing and Sustainability,  I offer the Btu/$ as the best solution.  According to the USEIA, “The average heat content of coal produced in the United States in 2012 was about 20.21 million British thermal units (Btu) per short ton. The average heat content of coal consumed in 2012 was 19.55 million Btu per short ton. Assume that one ton of coal contains 20,000,000 Btus and one MMcf (Million cubic feet) of natural gas contains 1,000,000 Btus, by definition. Using the current prices the Btus/$ for one ton of coal is 20,000,000/$43.50 or about 460K Btu/$. Natural gas is 1,000,000/$2.37 or 422K Btu/$, slightly lower, but not enough to justify any massive changeover from existing technologies.

Total Cost of Ownership

Political considerations tend to be bogus so let’s stick to the economics and science. Natural gas has many advantages in both. We take science first.  The USEIA lists these carbon dioxide (CO2) contributions with the accompanying text. “Different fuels emit different amounts of carbon dioxide (CO2) in relation to the energy they produce when burned. To analyze emissions across fuels, compare the amount of CO2 emitted per unit of energy output or heat content.”

Pounds of CO2 emitted per million British thermal units (Btu) of energy for various fuels: (per USEIA)

Coal (anthracite) 228.6
Coal (bituminous) 205.7
Coal (lignite) 215.4
Coal (subbituminous) 214.3
Diesel fuel and heating oil 161.3
Gasoline 157.2
Propane 139.0
Natural gas 117.0

 

The science is described by USEIA this way. “Natural gas is primarily methane (CH4), which has higher energy content relative to other fuels, and thus, it has a relatively lower CO2-to-energy content.”  Expressed in common terms, this table shows that Natural gas is almost twice as clean as coal.

Now comes the TCO cost advantage. Coal must be transported from sources to end user, adding both cost and greenhouse gas emission.  Natural gas is transported via pipeline, a far less costly, more efficient, and with less greenhouse gas emissions.  Coal must be unloaded, stored for use, using belt conveyors or other devices.  Supplies must exceed average replenishment rates to account for weather, train, and other problems.  Natural gas is available on demand and has far fewer delivery problems.  On site storage is rare.

The contribution of fracking

Osborne notes that, “The shift in fuel use in the power sector comes as gas prices fall to historic lows, driven down by the flood of hydraulic fracturing and horizontal drilling operations across the Midwest and Texas.” He closes his story with this observation, “Over the past five years, natural gas-fired electricity has grown from 25 percent of the power supply to 35 percent. Over that same time, coal’s share dropped from 43 percent to 31 percent.

The next time some under-informed and self-proclaimed guardian of the environment throw stones about fracking, remind him or her that not only is it clearing a path to energy independence, but that path is less expensive and cleaner.

God Bless American ingenuity and enterprise.

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Five years ago, while researching and writing Green Purchasing and Sustainability,  I discovered the “No Left Turn” policy developed in 2005 by UPS .  Ten years ago, UPS plotted driver routes using Global Positioning System (GPS) technology to save 28 million road miles, 3 million gallons of fuel, and earned much greater driver delivery efficiency by eliminating left turns.  It was a quintessential example of sustainability and cost savings.

green_purchasing_shadowWire reports this fall cite how UPS is increasing its efforts to go green and earn more green in the process.  In a typical nine hour shift, UPS drivers make between 50 and 150 deliveries and confront unpredictable and ever changing traffic challenges.  Encouraged by the success of technology and the cost savings which are also sustainability gains, UPS is raising the bar with a goal to save more than 100 million miles of road trips per year.

The motivation is an increase in online sales.  Black Friday 2015 earned the highest volume of Internet sales ever and is seen as an omen for the future by many retailers.  The National Retail Federation expects annual growth of 6% to 8% in online sales at the expense of traditional brick and mortar stores.  All of these online sales are not picked up at stores and must be delivered and thus the bonanza for courier firms like UPS and FedEx.  FedEx and UPS expect double digit increases in shipments for Christmas 2015 compared to Christmas 2014.

Technology plays a huge role

The goal is to use computers to minimize “human touches” as each touch introduces the possibility of an error.  Current software packages allow workers to process 40% more packages, a huge productivity gain.  But that is just the beginning.

UPS employs a routing technology called Orion, an acronym for On-Road Integrated Optimization and Navigation  which will be used on 70% of UPS routes this Christmas season.  According to UPS, it saw a reduction of 6-8 miles per route driven last year, which translates to lower fuel costs, emissions, tires, vehicle maintenance, etc.  The expectation is that UPS will reduce mileage by 100 million and reap all the savings along with sustainability gains.

UPS saved 3 million gallons of fuel during its testing of the program from 2010-2012 and says it will reduce consumption by another 1.5 million gallons this year. Once the program is rolled out to every driver by 2017, the company says it can save $50 million by taking just one mile off each of its driver’s daily routes.  That is impressive by any standard.

UPS touts the environmental benefit of reducing fuel costs claiming that 1.5 million gallons of saved fuel eliminates 14,000 metric tons of carbon dioxide emissions. Is there any clearer evidence that green purchasing equals cost reduction?

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Not every advice column in newspapers have good advice. Such was the case in a recent story taken from a blogger at GoBankingRates.com. It cited 3 things to never say at a car dealership (sic, the infinitive was split in the title), only one of which was valid.

When you buy a car, you are negotiating.  As such, preparation is your most important obligation. You should never set foot on a dealership unless you have studied the market, models, and prices via the plethora of online resources.

A flawed suggestion

The story says that “price discrimination” is perfectly legal technique. This is odd because the Robinson-Patman law specifically outlaws discriminatory pricing.  The larger point trying to be made, albeit clumsily, is that this is a game of poker so keep your poker face; do not let your enthusiasm betray your wallet.

Instead, recognize the reality of what you are doing, buying transportation via a depreciating asset. Let that by your attitude rather than taking the trite, obvious, and transparent tactic of finding things wrong with the car and offering to pay 10% less than what you actually expect to pay.

This is a fool’s errand. You buy a car every few years; the salesman sells cars for a living, often closing several deals a week. He is the pro, you are an amateur ingénue on his turf.

The story is correct about doing price research. Even so, different dealers are willing to offer a vehicle with identical equipment for substantially different prices. Sometimes, it is the identical vehicle as they trade inventory to make a sale. There are back end deals, manufacturer bonus offers to dealers, and so much more that you just do not know.

Once you know the car you want, look for it online, obtain pricing information from a variety of sources and solicit online offers from dealers.

blog 74B pushy salesTwo points were good advice

The story speaks of monthly payment buyers. I agree, never say how much you want to spend either in lump sum total or monthly amounts. This opens you to all kinds of games and manipulation. It is also far better to obtain financing ahead of time from a financial institution rather than endure the Finance and Insurance or the  so called, “Business Manager” at the dealership.

Lastly, recognize that extended warranties are largely a waste of money.

Happy car buying experience.

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Purchasing expertise is a rare commodity. Most purchasing subject matter experts are company or industry specific. Moreover, this micro population in general has neither interest, willingness, or appreciation for how to serve commerce at large nor knowledge of the legal process. Therefore, attorneys usually do not know where to find an expert witness in purchasing when they need one.

Google “expert witness in purchasing” and depending upon the day, my name, web site, or blog comes up in 4 to 7 of the top 10 organic results and the American Purchasing Society , a strategic partner, fills another 3 or 4 slots. This is further evidence of how elite is the pool of expert witnesses in purchasing.

Why so? 

An expert witness in purchasing must possess a blend of talent, skill, and experience ingredients. Among credentials in the purchasing profession, the Certified Purchasing Professional is the threshold criterion. Knowledge of the legal process, ability to understand and digest the concept of “discovery”  and a comprehensive mastery of purchasing laws are mandatory. For commerce within the U.S., expertise with the Uniform Commercial Code (UCC)  is an absolute requirement, at least as to the purchase and sale of goods. Further, the purchasing expert witness must be practiced in contract law and forms of contract.

 What do lawyers want from a purchasing expert?

A lawyer seeking expert witness services in purchasing, or any other subject for that matter, wants a virtually unimpeachable authority, or at least less impeachable than the other side’s expert. Fortunately for the legal world, there are so few purchasing expert witnesses that finding and qualifying one usually makes all the difference.

Every expert witness case involves strict ethical and contractual limitations as to disclosure of names, cases, or other identifying information. As such, it is important to have attorney references from previous cases. The attorneys discuss the expert’s abilities but not the specific cases. The expert witness should never divulge the cases and parties with which he is involved.

Expert witnesses don’t usually dispute facts unless they are arguable or shaky. Rather, the expert witness’ role is to interpret facts and render an opinion. The crucial wording for expert witnesses is “to within a reasonable degree of certainty.” The review of discovery documents, preparation of the report, deposition, and even testimony at trial all have the same goal, the formation, presentation, and documentation of the expert opinion.

Frequently, testimony at trial is not required as cases settle before trial. The rational is that it is better to settle before trial, even if on the courthouse steps. http://www.forbes.com/2010/07/21/when-to-sue-entrepreneurs-law-taxation-bovarnick.html The Expert Witness Report can be enough to move parties toward settlement. Sometimes, a report is not necessary. Here is an example.

A law firm engaged me to render an opinion for their internal use only. That is, they wanted to know how I saw the chances of success. This happens on occasion. Their client was an insurance company that insured a Mom and Pop independent retailer. The retail store owners had purchased fireworks in one state, where it was legal, but sold them in their home state, where it was illegal. A customer got hurt, sued the retailer, who had no money, so it was on to the deep pockets http://www.yourdictionary.com/deep-pocket of the insurance company. The attorney assessed his client’s position as week and open to extensive damages.

The facts were messy, few documents, oral contracts and disputed accounts of what had transpired. Their only question was if any principles of professional purchasing had been violated, in my opinion. After review of some of the salient points, I advised them that there was little I could offer given the facts and information supplied. I am certain they proceeded to settlement negotiations rather than risk a jury decision.

November 6th, 2015 | Tags: , , , ,
Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Editor’s Note: This is a non-business post, one of but a handful in the seven years of this blog. All of us have families and personal stories; this is one of mine. For my sales brethren, yes, it is true, we supply pros have a personal side.

Dad was a WW II veteran, a proud Marine who enlisted in 1943 at 17 years old. What were you doing at 17? I was an irresponsible, fun loving kid, as were most of my baby boomer companions. Little did I appreciate how much Dad and his compatriots did for the baby boomers and the country at large.

Education has been a driving passion for me, in part because my father, who did not finish high school, was a learning advocate and as studied as any graduate student of his era. I inherited the passion for education from Dad and went on to be the first in my family lineage ever to have graduated from college. Indeed, my practice in education & training for the purchasing profession is but one manifestation. How I wish I could tell him now how much I appreciate him. Maybe he can feel my admiration.

My younger brother Dick and I are 15 months apart. One day, when we were 5 and 6, we stole into Daddy’s ’53 red Ford pickup truck in hopes of emulating his behavior when he gave us rides. How we loved riding with Daddy in his truck – no seat belts on the bench seat, roll down windows, and running boards.

1953 Ford pickupIn the 1950s, pickup trucks had an ignition switch, a starter switch, a manual choke, clutch, and an accelerator, a total of five controls. Accordingly, it took one hand each for the ignition, starter, and one foot each for the clutch and accelerator, and if you did it all correctly and quickly, you could adjust the choke so that the truck started. The transmission was three speeds with a column shift. When parked on the dirt path, the track was always left in first gear to prevent rolling backward.

My brother and I liked to play in the truck bed. One day, we climbed into the cab to try our luck at driving. Our legs were too short to reach the pedals but we made a discovery. When we pressed the starter and ignition together, the truck bucked forward. It was a great thrill and we laughed, doing it again and again until Daddy came out to give us what for!

I do not know what prompted this memory but it moved me to write about it. It has elements of fun, mystery, adventure, learning, innocence, and consequences. From our earliest memories and experiences, there are lessons that stay with and influence us for a lifetime. Thanks, Dad.

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Transportation of goods is such an interesting and constantly changing market dynamic. I learned a good deal about transportation in the late 1990s when I was hired to research, write, and deliver a program on logistics for the Portland Cement Association.  A few years later, I was fortunate to write and deliver training programs for Burlington Northern Santa Fe Railways (BNSF)  , where I learned much about transportation in general, and rail transportation in particular.

For more than a century, trains hauled coal, the workhorse fuel of choice in the U.S., even as oil and gas grew more competitive through much of the 20th Century. Coal was hauled on “unit trains”, meaning one cargo category for the entire 100 – 125 car shipment, as opposed to “manifest” trains, meaning mixed cargo categories distributed on cars of the shipment. Coal shipments are falling off as alternative fuels become preferred energy options so why are BNSF and competitors like Union Pacific Corp (UP) and CSX Corp investing so heavily in new infrastructure and capacity?

Railroad operators have seen a drip off in coal traffic of 20% in the past five years, according to data compiled by Bloomberg Business.  On the other hand, failure to build the XL Pipeline has been a huge boost for rail firms. They are buying new tanker cars since rail transport is cheaper than truck transport of petroleum products. But that is not all. Rail companies are investing heavily in new track lines and facilities. Here is why.

BNSF locomotiveBNSF is nearly finished with a second parallel rail line along the 2,200 mile Los Angeles, the busiest U.S. container port to Chicago, the biggest mid-continent rail hub. The second track will virtually eliminate sidetracking as oncoming trains approach each other. For decades, trains on the single track headed toward each other had to communicate so that the priority train (BNSF and UP refer to priority trains of Amtrak passenger or unit FedEx or UPS freight as Z trains) could proceed and the secondary train side tracked. Both trains had to slow down over long periods of time and lost hours in the process.

Without cumbersome sidetracking, longer trains will be able to travel at higher speeds, increasing load and decreasing time. An industry source, FTR Transportation Intelligence estimates that rail moves less than one-fifth of the 71 million trailer loads that travel 550 miles or more. The 550 mile cutoff is the accepted distance where rail becomes the preferred alternative. For comparison’s sake, one rail car carries as much freight as four truck trailers so a 100 car train hauls the equivalent of 400 trailer trucks.

Converting road cargo to rail cargo is the goal of the infrastructure investment. The lure for customers is substantial savings. Over the road, one ton of freight can be moved approximately 60 miles on one gallon of fuel. That same ton of freight can be moved 200 miles over the rails for the same gallon of fuel. Using $2.00/per gallon as a fuel price, it costs $0.033/ton-mile over the road and $0.010/ton-mile over the rails to move one ton of freight – less than one third of the cost! Multiply that difference by hundreds of thousands of tons and the savings become irresistible, or so goes the theory.

According to XPO Logistics , about one third of long-haul freight it sends by truck can be switched to train. Industry wide, XPO estimates that about $100 Billion in business could be switched to rail transportation.

It will take some effort to persuade shippers to shift from road to rail. Still, some freight categories less time sensitive like auto parts, furniture, and building materials are probably moved more efficiently and cheaply by rail. One of the biggest investors in rail is Warren Buffet, chairman of Berkshire Hathaway. Betting against Warren may not be a good business decision.

October 23rd, 2015 | Tags: , , ,
Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Over the past quarter century, I have logged more than two million flight miles For the past fifteen of those years, flights have ben almost exclusively on American Airlines although I know many fliers who have used the so-called “ultra-low cost” carriers. Almost all of these low cost customers are disillusioned from day one for a host of reasons. Recently, I read an Associated Press (AP) story that put some research and data behind the anecdotal complaints.

Ultra-low cost is a misnomer, as any purchasing pro knows. Any fool can get a low price but at what cost? The most well know carriers in this new genre include Spirit Airlines, Frontier Airlines, and Allegiant Air, although the latter is much smaller than the first two. All three boast of cheap fare tickets on their web sites.

The AP story suggests that cheap base fares attract customers in an industry where discomfort and inconvenience are expected. However, thee cheap seats airlines charge for soda, carryon bags, printing of boarding passes at the airport, seat selection, and no toll free number raise figurative and literal costs. As aggravating and expensive as these fees are, comfort has a higher toll.

A321_Frontier__Airlines[1]Cheap carriers pack more passengers onto their planes because seats do not recline, making it easier to cram more seats into the same space. Consider these leg room facts and figures. Frontier’s new Airbus A321 jets will have 230 seats. Spirit packs the same plane with 218 seats, while conventional competitor American has 180 seats on its A321 Airbus planes. What price do you put on comfort?

Woody Allen is credited with the quote, “Eighty percent of success is showing up.” The low cost carriers would be wise to heed this advice, at least as far as on time ratios are concerned. Frequent flight delays cause the three ultra-low carriers to have 20 times the complaints of much larger conventional competitors like Alaska Airlines or Southwest Airlines. Spirit has the worst on time record of the 14 largest U.S. based carriers with more than a third of its flights being at least 15 minutes late. Frontier is next to last. In June 2015, Spirit’s on time record was below 50%, a fact Sprit blamed on bad weather. It would seem that every airline experienced the same weather.

A more likely explanation is that the three cheap carriers lack the equipment, personnel, and capacity to deal with less than ideal situation. It is hard to book a passenger on a later flight if you do not have one. Disparate fee structures make the conventional carriers unwilling to accommodate stranded passengers from the cheap seats. This can contribute to very long delays, even overnight accommodations and meals, which drive up the cost in out of pocket and productivity costs, neither of which is defrayed by the low cost carriers.

All of these facts and figures seem to be creating a mutually beneficial environment between the traditional and cheap airlines and their customers. The story states that traffic is jumping by double digits for the cheap seats. The diversion of customers from the traditional to the cheap keeps pressure on the traditional airlines to compete on price, to some extent, or at least to moderate any increases.

flying soloSo who are these cheap seat fans? The story cites only one interview, a college student who lives in Denver but attends school in Dallas. I know infrequent leisure who have little basis of comparison who chose the ultra-lows, at least until they either accept the inconvenience or decide the price is not worth the cost.

If you are a business traveler, even if not a purchasing pro, the choice of carrier is easy to make.

Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Extended warranties are usually associated with automobile purchases but they also extend to home appliances and major equipment buys, both at the Business to Consumer (B2C)  and Business to Business (B2B)  spheres of commerce. The word “extended” refers to a term or time period beyond the basic warranty. The extended warranty is basically an insurance policy intended to protect against losses, or at least defray the cost. Especially when the dollar amounts are “large”, there is an economic inducement to insure against loss with the purchase of an extended warranty.

Are Extended Warranties Worth the Cost?

This question crosses the mind of almost every buyer. Let us consult the wisdom of a recognized authority in the field, Dave Ramsey . Of all the vaunted “financial advisors”, Dave is in the top tier.

In a recent column, Ramsey said that he does not buy warranties of any kind. He claims that “between 12 and 18 percent of the cost of the warranty apply to the probability of repair.”  Dave goes on to say that “The rest is eaten up in profit, overhead, and marketing costs.” Put into slightly different words, Dave suggests self-insurance, and he states that, “…if something goes wrong, you couldn’t afford to buy that item in the first place.” 

I agree and offer another reason. Assume a large ticket buy like an automobile or appliance. By design, I buy items known for high quality, reliability, longevity, and similar qualities. Does this cost more? Heck no, the price tag is higher but the Total Cost of Ownership  is lower. For example, the Toyota brand has been a family favorite for more than two decades. We routinely buy a Toyota every 5-7 years and never pay for an extended warranty of any kind because the car is built so well that the chance of high cost quality defects are low; low enough that we are willing to self-insure for the possibility. During the 25 past years, we have bought eight vehicles (including a Subaru and a Jeep). The cost of the top of the line extended warranty ranged between $2-$3 thousand for each vehicle. Not purchasing the warranty saved us almost $20,000 over this time, an amount that would buy an upscale used vehicle in today’s market.

You might say that our example is isolated and anecdotal. Perhaps, so let’s take a larger sample. Consumer Reports, in an April 2014 story entitled, Extended car warranties: An expensive gamble The majority of buyers never use the coverage”  that “55 percent of owners who purchased an extended warranty hadn’t used it for repairs during the lifetime of the policy, even though the median price paid for the coverage was just over $1,200. And, on average, those who did use it spent hundreds more for the coverage than they saved in repair costs.” It is an illuminating story and I commend it to the readers of this blog.

Is the warranty ever worth the expense?

Yes, I believe it is advisable in rare circumstances. We bought insurance on our daughter’s smart phone because she loses and breaks them so often. A few years back when we renovated our kitchen, we bought a new “counter depth” refrigerator. Even though LG was the manufacturer, we thought it wise to buy the insurance since the product was so new and untested. We have indeed used the warranty but so far, the covered repairs have cost more than the damage.

Moral of the story: save your money and do not buy the warranty.