Cost Vs. Quality, Why the disconnect and how can Lean Manufacturing Help?

On almost every cleaning tender I'm involved in, the Production Team generate a scope of supply, this scope is given to all contractors bidding within the tender. We then tour the facility and talk with the potential customer about how they want areas to be cleaned, what the quality level requirements need to be in certain areas and the amount of time we have to clean these areas or what kind of production window we need to work to. Production Managers are serious when it comes to quality on their production line, and rightly so. It directly affects their bottom line and they want everything to run as smoothly as possible. Usually but not always, there's a team of us from different companies that walk around with the potential customer and ask questions and write down on our tablets, how long we think each job should take and what consumables or equipment may be required. There could be hundreds or thousands of individual line items that need to be costed for. We all then take that information away and develop an engineering estimate taking into account, manpower, consumables, small tools, equipment, uniforms, launch costs, management costs, training, overheads, margins and a number of other items. We take everything into account regarding how the Production Manager wants the contract to run and to what quality level. This all filters down into a total per year cost for the contract. We then go over all these costs and see where we can be more efficient. We eventually get it down to the lowest price we can without sacrificing anything we have been told by the Production Manager is required. So now we are finished. We have a cost that will give the Production Manager exactly what they want. We then submit these costs to the potential customers purchasing department. Now its important that you realise its the purchasing departments job to get the best price that they can on anything they purchase for their company. This includes contracts and tenders. So, right away we have one department that wants quality (Production) and one that wants the cheapest cost (Purchasing). To be straight forward here, regarding cleaning contracts, purchasing gets evaluated on the contract cost and production gets evaluated on production quality. You can dress it up anyway you like but this is what I have seen on the countless tenders I've been involved in. This may not be the case at your facility, but its what I've seen as the norm in the industry. Please don't shoot the messenger. We are contractors trying to win the tender. The lowest cost wins. I've never seen a contract tender where the highest quality wins. So how do we reduce costs without reducing quality? Well that's the question isn't it? There is such a tiny target we have to hit here. The current contractor, who we hope to take the contract away from, has a monthly running cost and margin. Now the monthly running cost will not change much. Its manpower (Payroll) which is protected under TUPE and consumables which are generally the same price for everyone. So if the contract cost doesn't change we only have the space between the running cost and the margin to hit and it has to be worth the customers while to make the change, they are not going to change for a few thousand pounds. It also needs to be worth our while as a contractor to take the contract on, we cant take on a break even contract otherwise there no sense in doing it. We are a business after all. There are only so many areas we can take this money from, manpower, consumables, small tools, equipment, uniforms, launch costs, management costs, training, overheads, and margins, the same items we developed walking the factory with the production manager. So were does the money come from if we are to reduce cost and win the contract. We cant take it from manpower because TUPE (Transfer of Undertakings and Protection of Earnings) ensures the same pay yesterday as tomorrow when we take over a contract. In order to perform the required tasks the customer has given us, we need, small tools, equipment and our people need uniforms. We obviously have to launch the contract so we cant take anything from there and we will need to manage the contract when the launch is over. So all we have left is consumables, training, overheads and margin. We really do need all of these to give the Production Manager what they require. We can buy reduced quality (Here we go) consumables at a cheaper cost. Lets get rid of the training or decrease it so we can reduce cost, I mean, they are currently doing the job so there's no sense increasing our price and losing the contract training them for something they are already doing, but expect little improvement over what you are currently getting as a service. Overheads are fixed so we cant do anything about that, and its only 1% of the contract currently. Once we reduce the consumables and training, the margin percentage will reduce automatically. So, we have inferior consumables which hopefully will be adequate and not effect production quality. We may however need to purchase a higher quantity of consumables because if they are cheaper they may not work as well. Also it may require more manpower, which we don't have, as we may need to clean things twice because the consumables are not the best quality. But if our manpower increases then we will go over budget so we will need to take the hours from somewhere else on the contract and reduce quality in those areas. What was once a simple matter of, this is what we want done and this is the quality level we need, has turned into a cost exercise and quality has been the victim. There are really no options here. Its so very difficult or imposable to find something of higher quality for the lowest price. But that's what contractors have to deal with on every tender. So what's the answer and how do we change the industry? Well, this is going to be a bit of a let down, I don't know. But there are areas that we can explore that take us closer to that eutopia that we can apply once we have been awarded a contract.

Producing high-quality work at the lowest cost is a common goal for many businesses. This is where lean manufacturing comes into play. (See below)

Lean manufacturing is a systematic approach to minimising waste within a manufacturing or service system while simultaneously maximising productivity. Here are the key principles and concepts:

1. Value: Identify what the customer values and focus on activities that add value to the product or service. Adding value doesn't necessarily mean adding cost. It could mean reduced waste, reduced materials etc.
2. Value Stream: Map out all the steps in the production process to identify and eliminate waste. This is known as value stream mapping. Waste is a huge killer of profitability. It seems that in some cases waste is just accepted. It shouldn't be. Take the time to look at your waste and see what can be done to minimise, reduce or reuse it.
3. Flow: Ensure that the production process flows smoothly without interruptions, delays, or bottlenecks. Look for unnecessary steps in production that could be eliminated. Are there areas that require human intervention that can be reduced or removed?
4. Pull: Implement a pull system where production is based on customer demand rather than pushing products into the market. Having stock is money just sitting there doing nothing and can reduce a companies cashflow. Look at a JIT (Just In Time) system to minimise large amounts of inventory.
5. Perfection: Continuously strive for perfection by making incremental improvements and eliminating waste. You will never his perfection, there will always be one more step you can do to make it better. But by having it as your goal will continuously drive you and your company towards your common goal.

Waste in Lean Manufacturing

Lean manufacturing identifies seven types of waste (often remembered by the acronym TIMWOOD):

• Transportation: Unnecessary movement of products or materials.
• Inventory: Excess products or materials not being processed.
• Motion: Unnecessary movements by people.
• Waiting: Idle time waiting for the next step in production.
• Overproduction: Producing more than what is needed.
• Overprocessing: Doing more work or using more materials than necessary.
• Defects: Products that do not meet quality standards and require rework.

Tools and Techniques

Lean manufacturing employs various tools and techniques, such as:

• 5S: Sort, Set in order, Shine, Standardize, Sustain.
• Kaizen: Continuous improvement involving everyone in the organization.
• Kanban: Visual scheduling system to manage work and inventory.
• Just-In-Time (JIT): Producing only what is needed, when it is needed, and in the amount needed.

By focusing on these principles and tools, lean manufacturing aims to create more value for customers with fewer resources.

If you or your facility are putting out a cleaning tender or wish to discuss a benchmarking exercise, please just send me a message or email me at the address below.

[email protected]

Thank you,

Craig