2024 was a rough year for many businesses; especially those in the manufacturing industry. Between labor shortages of quality workers, supply chain inconsistencies, inflation and high interest rates, companies are being tried and tested to either take advantage of what opportunities come or find a way to survive. I also believe that we’ve really had an eye-opening experience in realizing just how interconnected all of us are. The old idiom about a butterfly that flaps its wings in Japan leads to a hurricane that hits Florida. It is interesting how the business choices we make today can have a huge impact on the future of not only our company, but on all of the companies tied directly and indirectly to us. And how all of those implications can end up being reflected back to us.
When Cheap is Costly: What we can learn from Boeing
Boeing for example, is in the news nearly daily as they struggle to regain control of their safety culture, product quality, customer trust, and workforce relationship. While its commercial airplanes are the main focus in the news and public eye, these same issues are affecting products and services throughout Boeing’s operations from the KC-46 Pegasus tanker program for the military, Starliner and the ULA rockets, an Intelsat communications satellite that broke apart in orbit, and even Boeing’s Global Services division is under intense scrutiny over their maintenance and repair practices in the wake of the 737 MAX crisis.
However, the manufacturer’s problems didn’t just start suddenly. While there were many changes and challenges for the company throughout the years, the early 2000’s shows a shift in the company from its “Working Together” philosophy and catalyzing with doing “More with Less” mind set in 2005. Boeing had shifted focus away from creating quality, cutting edge, and competitive products to being financially competitive and returning value for shareholders. So what are the consequences of this? I would argue that one of the biggest and subtle impacts is the affect on company culture and company mind set. When focusing on the monthly bottom line, the need to find quick and efficient cost cuts can have a profound affect. Quality of component parts and materials goes down. Manufacturing processes and procedures are “streamlined” but may end up introducing inherent deficiencies. But most importantly, it affects the mind set of employees. From line workers up to senior supervisors and managers, resulting in a company caring more about the revenues and less on quality of product. I also believe this inherently affects the mindset and morale of employees and their relationship with each other and superiors as demonstrated by Boeing and its relationship with its striking workforce.
Yet the ripples of effects don't stop within the company. Besides the obvious implications for Boeing's customers. Slow and halted production at Boeing manufacturing facilities impacts all of their suppliers. Stopped production lines have resulted in stoppages and furlough at part manufacturers and other services that support airplane manufacturing, and it doesn't stop there either. Think about all of the local businesses that depend on Boeing workers going to and from work. Food Vendors, gas stations, coffee shops, and much more likely directly felt the results of lower traffic and less spending when the workforce stopped going to work. Now as Boeing scales back its operations to more closely align with the realities of their capabilities, all of the supporting and peripheral businesses tied to Boeing's operations will also likely have to re-evaluate their own operations and financial situation. We still don't know what the final tally will be as delayed and fewer Boeing planes being delivered to airlines impacts the commercial airline industry both here and overseas. Not to mention all of the other industries that Boeing is either pulling back from or reducing its presence. The butterfly and the hurricane.
As for the present, we know what the current effect that doing “More with Less” has had on Boeing. Yet, Boeing is not the only example of this. OceanGate and it’s Titan Sub where failure to commit to quality and cost cutting were major factors leading to its tragedy. Ford and GM are also finding themselves in a much diminished state after a focus on cutting costs and market share in years past led to significant problems years later from which they are still trying to grow.
Food for Thought: My own experience
Here’s a personal example. For a while, I was subscribing to one of those prepared meal delivery services. While the food was great, the reliability of on-time delivery was not. Roughly every 1 out of every 6 deliveries would be late. While talking with representatives for the company, I learned that the company found it cheaper to use a Third-Party Logistics carrier to move orders from the preparation facilities to a major carrier hub for UPS or FedEx several states away and closer to intended customers. For example, picking up in New York and delivering to UPS in North Carolina. I pointed out to the company representative that each time a delivery was late they offered me a 25% discount on my next order. If on average every 6th order is late and a 25% discount is offered, what does that scale up to when we are talking about 50,000 customers (rough estimate, some sources estimate much higher).
If we assume that in a year 10% of customers has this experience, doing the math, 8 – 9 orders a year per customer is late: that’s 40,000 – 45,000 total orders that will be discounted 25%. If we estimate $80 per order (which is on the lower end), that’s $800,000 to $900,000 in lost revenue annually. This of course does not factor in the associated costs of losing a subscribed customer, and losses incurred to offer attractive discounts in order to gain a new customer to replace them, or even discounts offered to encourage ex-customers to return. This of course does not look at the cost-effectiveness experienced by the customer who will have to spend additional money to cover the meal missed by the late delivery or the inconvenience incurred in do so. After all, time is money, and time will be expended in dealing with covering the missed meal, dealing with customer service, etc. This example only accounts for orders that provide meals for a single person. Imagine the change in scale when you start accounting for orders that provide for 2 or more people.
The question now becomes, “When does cheap become costly? When does quality actually become inexpensive?”
Cost-effective vs. Cost-cutting: Striking the Right Balance
We at Blackberry Pallet understand that all of us have to find efficient, cost-effective ways to survive in a dynamic economic environment. Afterall, a company needs to be able to survive the hard times in order to take advantage of market turnarounds. However, in doing so, it’s important not to incidentally incur hidden costs that will wreak havoc later. Blackberry Pallet has always strived to find the balance between cost-efficiency while maintaining quality. Fortunately, we have some advantages. Being vertically integrated within the Turman Group, enables us to have our raw materials sourced from within the corporate family. This gives us better control over cost and quality. Since we have a direct line of communication from the loggers to the sawmills, we are able to communicate up and down the line to adjust for changes in market demand and source supply. For other parts, we have direct relationships with our supplier partners. This gives us the ability to have direct feedback loops that enables both us and our supply partners to dynamically react to business fluctuations ensuring no downtime or delays. Each piece of lumber is hand selected, and each completed pallet is inspected. Our heat treatment process is audited and certified by Timber Products Inspection with documented proof of ISPM 15 compliance for every heat-treated load. We accomplish this all without sacrificing the level of quality our customers can expect and the reliability of service they can depend on. All while maintaining the best cost-effective pricing that helps to ensure the customer’s bottom-line.
Recycled-Refurbished pallets can be a great cost-cutting measure, especially in the current economic climate. Used pallet prices are at an all-time low, and there has even been the emergence of very cheap combo pallets, with new lumber components being combined with reclaimed parts. However, the argument still stands. When does cheap become costly? En masse, recycled pallets and recycled components simply do not have the longevity and reliability of new construction. Pallets are only as strong as the weakest component. So, when calculating planned operating costs, or evaluating past expenses, be sure that the choices that are made are actually cost-effective. Here’s another age-old idiom, “You get what you pay for.”
Calculating the True Costs: The Big Picture
Cost-cutting didn’t only affect Boeing’s quarterly bottom-line and earning’s reports. Just like it did for Ford, GM, and OceanGate, cost-cutting also affected the company culture leading to shortcuts, acceptance of inferior work that would previously have been corrected or rejected. Failure to speak up when things weren’t quite right, letting small problems fester into larger ones. Leading to delays, cost overruns, lawsuits, and tragedies. These same ripples of effects extend out to the surrounding communities, businesses and may travel even further. It is easy sometimes to lose sight of the big picture when immediate problems demand attention. "We have to make this deadline." "We can cut cost here; it won't matter." We could think that “it’s just a pallet,” but we remind ourselves that the pallets we make support and protect our customers’ products traveling nationally and globally. At Blackberry Pallet, our quality matters.
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