Procurement: Heaven and hell
Only when the goods flow, in the right quality, sequence and speed, is the laundry able to fulfil a market’s demands. And able to survive in the long run.
The flow of goods is our heaven, but it is also our hell. It is the flow of goods in the laundry, which gives us our income, but at the same time it generates the majority of our costs. So it is to the flow of goods we must tailor our strategies, our production equipment and the deployment of resources.
And our leaders, employees and suppliers must adapt their contributions in a way so that they either increase the flow of goods or reduce the total variable costs. Preferably both.
In the end it comes down to assessing concrete attributions to the flow of goods and its costs. The rest is less important, or downright insignificant. As is the colour of the machine. Whether the machine is producing 800 or 1,200 pieces an hour is also irrelevant, if we are not able to supply it with 800 or to receive 1,200 pieces downstream.
The capacity of a process route depends on the planning, so we have to relate a new machine’s contribution to the laundry’s product mix as well as to its planning routines and skills. Colour, tolerances, gearing, Meantime Between Failure and etc., simply have to live up to standards, and should not steal our attention from the essentials.
Of course, finish quality, delivery predictability, lead-time and credit is important, when we sell. And, of course, noise, working heights, delivery time, certifications, credit, the colour of your tie, and the like is important, when we buy. But the differences between the articles leaving the laundry are so small, that they are in reality like mass-produced standard goods, in standard qualities.
Should a laundry or a laundry supplier at long last be able to differentiate himself from the crowd, be it on functionality or quality, in the end it still comes down to the cost – be it the initial expenditure or the operating cost. Better quality or better working environment are just added bonuses, which the customer more or less expects to come free.
But we hit upon something important there: The distinction between initial expenditure and operating costs.
I wrote about it in my first blog entry – identification of the demand – with a focus on the laundries. But, what about the suppliers?
Total variable costs make up some 60-80% of the laundry’s cost complex. Write offs only some 5-15%. Should we let them get away with supplying us products on a pallet in the yard, and just leave it to us to take it from there?
Well, it’s your money.
But we are about to have it figured out now, because what is it we need to know something about? What should our core competence be?
Running the laundry, of course. It is almost so elementary it seems stupid to ask a question like that. But nevertheless our suppliers expect us to have an opinion about material thickness, geometric tolerances, machining allowances, steel qualities, and to prefer one nuance of hammer lacquer to another, because this is what they want to talk to us about.
We could turn the question around, and ask:
• who has the highest level of competence on machines? The machine suppliers, of course.
• who has the highest level of competence on chemicals? The chemical suppliers, of course.
• who has the highest level of competence on textiles?
I think you’ve got the drift of it now.
But then, what should the laundry’s core competence area be?
There are actually two: the market’s needs, and the laundry production. At the same time we should have in our mind a clear understanding of our customer and her needs, and of the workings of our production. Not the details, but the entirety. The system.
We should have a firm grip of the mechanisms that generate and support a steady flow of goods from people, machines, water, energy and chemicals to the expecting customers – how to maintain, or even increase this flow, and at the same time control its costs.
So the message to our suppliers should be: Sell us what we need, which is not necessarily what you have in your briefcase. And qualify and quantify your solutions, thank you.
And then back to the question: Should we let them get away with supplying us products on a pallet in the yard?
It’s your money. If you think you can afford to talk about the colour of the hammer lacquer, then yes.
But in that exact moment, when you realize that you are not only paying the bill just once, but every time, every day, and that all solutions should be aimed at either increasing the flow or reducing the costs, then a machine’s initial expenditure becomes less important. Does that sound strange?
The calculations are simple.
How much is it?
Which machine should I choose?
• machine A, which is 60,000 GB£, or
• machine B, which is 80,000 GB£?
This is the question most laundry suppliers want us to answer. Can you?
I can’t. How do I answer a question like that?
I would know a lot more if we, together, could work out the machine’s contribution to my process route capacity. But I need even more than that.
I also need to know the machine’s operating costs. If I knew that the total annual operating costs and write offs with:
• machine A was going to be 320,000 GB£, whereas they with
• machine B was going to be 260,000 BG£,
– I would have been pretty much closer to an answer. I should choose machine B then, no matter its colour. Also even if it, at first, looked more expensive.
If both machines last 10 years, machine B will have saved the laundry a bundle, or to be more precise:
10 x (320,000-260,000) – (80,000-60,000) = 580,000 GB£
– during its lifetime. Now, that’s a language I understand. And strangely enough the most expensive machine turns out to be the cheapest.
In fact we should have estimated the process route’s operating costs, or, even better, the entire laundry’s operating costs – not only the new machine’s – and looked closer at how each machine alternative fitted in with the laundry’s material flow. We should estimate the laundry’s performance and total costs, originating from the laundry’s planning and decision basis.
So if our suppliers are to work out concrete and reliable estimates of the operating costs, they also need to be able to distinguish between, and calculate the consequences of, different product mixes and planning routines. Can they do that?
No, they cannot. Well actually they can now – with the help of Laundry Logics.
Can we ask them to?
Why, yes of course. It is our money. Besides, we should never approach the task of running the laundry casually or carelessly.
When the most expensive is the cheapest
Try considering the aspects for a moment. If you asked your suppliers to quantify their solutions based on your specific circumstances and routines, this would, for one thing, mean that:
• seemingly expensive machines might, all things considered, be the cheapest, if we compare operating conditions, which in some cases would allow us to buy higher quality and maybe even choose bigger solutions (e.g. a continuous batch washer instead of a washer extractor), and for another…
• one of the reasons why machine B was cheaper in operation could be, that it was supplied with a piece of software that eased, tracked or optimized the use of the machine and its contribution to the material flow (e.g. optimized the category sequences through a CBW and a dryer line), and it could mean that…
• when a machine supplier’s solution is cheaper than his competitors’ in operation, the discount is paid for by his colleagues, that is the chemical, energy, textile and workforce suppliers,
– in other words: everyone but the machine supplier himself.
The laundry gains by asking the suppliers to base their offers on the operating situation, of course, but actually so do the suppliers. It allows them to make better and more efficient solutions. And it promotes responsibility on both sides, because the model aims the laundry’s and its suppliers’ efforts at the same target, bringing them closer together.
That is, if your suppliers are able to quantify their solutions in your laundry’s context.
But are you not able to demand the same kind of professionalism in our industry, as professional buyers do in other industries?
And then it gets rather concrete:
Why should a laundry operator choose to buy all his machines from a turn key supplier, if he, as an alternative, is able to piece together his plant equipment with the cheapest washer extractor, the cheapest dryer line, the cheapest ironer line, and so on, from different, independent suppliers in the market? (And dear supplier – please do not sing a song about the steel quality, continuity in supplies, material thickness, hammer lacquer nuances and so on. Somebody is actually trying to run a business here).
The answer is quite simple:
Only if the joint turnkey solution is able to give us the necessary quality and working environment, at the lowest total cost in our particular production, i.e. operating and maintenance cost, as well as write offs.
Everything else is wheedling talk and cheap port.
Then turn the question around:
Why should a laundry operator piece together a solution with machines and equipment from a number of different, independent suppliers, who don’t have anything to do with each other, and will do anything to blame one another, and wouldn’t take ownership of even the smallest problem – when he is able to acquire a complete solution from one and the same responsible turnkey supplier, knowing that the machines are built to work together, with a qualified estimate of the operating costs, based on concrete product mixes and category sequences, maybe even with an efficiency enhancing software included, and where he is able to take out a maintenance contract on the entire solution.
Haven’t got a clue.
There is no sensible reason to make it harder than necessary on yourself, and especially not if it’s even going to cost you more in the long run.
So shouldn’t you evaluate each offer on their contribution to the total economy in the laundry?
And shouldn’t you demand from the suppliers that they understand your productions and are able to qualify as well as quantify their solutions with respect to your specific circumstances?
Why, yes of course. All arguments speak in favour of it. Nothing speaks against it – except, perhaps, from carelessness, lack of insight or in short of respect.
And then you are also able to pinpoint the key elements of an efficient procurement strategy.
Our suppliers’ solutions must be weighed against each other on their contribution to material flow, total costs and our managers’ process control possibilities (momentary, feed back and feed forward).
Yes, it’s tough, but that’s the way it is in a tough, competitive market, and under a restrained economy’s influence. History has shown us that quality, delivery times, credit, lacquer colour and the like are less important considerations.
When the laundry quantify a solution’s operating costs, be it on bottlenecks or not, they have to include dependent and independent consumptions, alongside write offs and maintenance, in their calculations.
But including dependent consumptions means including production planning, since dependent consumptions depend on batch sequences, which are determined by the planning.
So where does it stop?
You might ask. Are the laundry suppliers supposed to issue operation or cost warranties? How deep into the laundry do they have to go? Why not supply the laundry owners with management teams, if the material flow really is determined by planning, and costs determined by the material flow? Why not lease out entire laundry insides, with production equipment, management and the works?
Yes – why not? That would certainly be taking full responsibility for solution impacts.
It may not be the most natural development in the industry – and then again, maybe not so far fetched, when you consider the perspectives. It wouldn’t be that much different from the kind of facility service the laundries themselves have embarked upon, taking over the cleaner and her functions – with the Danish group ISS’s activities up through the 80’s and 90’s as a renowned example.
A small industry
It would be a leap in the development, which however springs from the realization that the industry is small, and that the easy win doesn’t exist. It is all about answering for your solutions.
There is only a limited number of laundries in the industry, they most often know each other, are on speaking terms, and know all the suppliers – at least by reputation.
Level of automation
But even though the suppliers try to convince you that a good laundry is an automated laundry, it is not true. One easily makes the mistake to be impressed by a heavily automated production, with its shining new machines, belt conveyors, conveyor systems and flashing lights, but mechanization in itself is no proof of profitability or a good workplace.
It is merely an attempt to adapt to market conditions. And it may well be out of place.
We do not necessarily have to increase the laundry’s level of automation. But we do have to adapt to the market, and, based on the market conditions, prepare ourselves to and create the best opportunities for survival. Sometimes we do that by not increasing the level of automation, and instead staying liquid and adaptable to changes.
The able laundry
Rather it is other characteristics we have to look for, when looking for the able laundry – such as e.g.: