Recently in my consulting career, I was brought in to help a new modular factory set up its assembly process. It was an exciting project — a very large, modern, automated facility, a minimal unexperienced team, and management eager to start production.
But as I began mapping their workflow and preparing for that first project, it became clear they had a much bigger issue than process layout. Although my contract didn’t include the aspect of costing, I couldn’t standby and became actively involved in their quoting process. I immediately became aware of an alarming fact.
They had no costing system.
Not a bad one. Not an outdated one. None.
They wanted to open the plant with an order in hand, which made sense — until they started bidding on that first job. When I asked how they planned to calculate their costs, the answer was vague: “We know roughly what it should be.” They based their quote philosophy on beating the competition…..that’s it! They had no system whatsoever—no cost deck with up-to-date materials costs, no labor estimates, useless overhead numbers etc.
Every number was basically a guess. I was flabbergasted to put it lightly. They listened as I explained the travesty of their approach, but they didn’t hear what I was saying. They hired an” estimator” who was from the construction industry not a manufacturing offsite background. They used labor numbers that had no resemblance of credibility. They said basically “we’ll figure overhead once we get going”. It was obviously a recipe for disaster, and it was.
This is somewhat of an extreme example, but many startups convince themselves that once production begins, the details will sort themselves out. They rarely do.
In this case, they unfortunately got the project. As they were in the process of attempting to complete per their contract, they realized they had underbid. Attempts to renegotiate lead to lawsuits and the end of their story is yet to be written.
Neither a startup nor a plant that’s been operating for years, doesn’t fail overnight. It fails one underpriced order at a time.
Systems don’t just manage costs — they reveal reality. Without that visibility, factories operate on assumptions instead of information. And when the assumptions are wrong, the results are predictable. Again, the effects of not knowing your costs are readily apparent. The effects are obvious, what isn’t often apparent is the cause—lack of systems. Lack of systems, not only in establishing and controlling costs, but in all facets or operational efficiency. Lack of systems in my experiences is without a doubt the number one cause of factory failures.
Looking Ahead
Next week, I’ll turn to another silent cause that affects both startups and established factories: the lack of real market data.
Some companies build great products — but for markets that don’t exist, or don’t pay what the model requires. That’s a different kind of blindness, but just as costly.
At Offsite Innovators, we’re here to help. We have and can assist those looking to enter the offsite manufacturing arena, or builder developers considering the feasibility of using offsite products.
If you’d like to explore this further, connect with me today.
Bill Murray, Co-Founder of Offsite Innovators
