Business Process Reengineering. Fishwrap, Inc. owns a chain of 20 similarsized newspapers. A decentralized purchasing system is used whereby each newspaper obtains its own newsprint. On average for all newspapers, 70 percent of the newsprint is delivered on time.

The following average cost data per newspaper have been obtained for the past year:

Of the purchased newsprint, an average of \(\$ 7,200\) turned out to be defective.
Because of the decentralized purchasing system, Fishwrap has been unable to take advantage of quantity discounts. Therefore, the company reengineered the purchasing process by introducing a corporate Purchasing Department. Each newspaper continued to purchase its own newsprint from approved vendors. However, the corporate offices began to track the purchases of all 20 newspapers and used that data to negotiate quantity discounts and resolve problems with vendors. The on-time delivery rate improved to 85 percent. The defect rate (in terms of dollars) decreased by 60 percent. The average quantity discount amounted to 2.8 percent of newsprint cost. After reengineering, the average salary and other purchasing costs for the local departments decreased from \(\$ 365,000\) to \(\$ 190,000\). The annual cost of the centralized Purchasing Department is \(\$ 1,800,000\).
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Evaluate whether reengineering the purchasing process was worthwhile.

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Cost of newsprint Purchasing Department salary costs. Other Purchasing Department costs. $980,000 240,000 125,000