Price, quality, speed – choose two. We’ve seen this “rule” written and rewritten in different ways since the 1950’s, when the Project Management Triangle first appeared. Also known as the Triple Constraint or the Iron Triangle, it is a simple way to define the complex mix between time, cost and quality. “You get what you pay for” is a cliché everyone knows, but people keep trying to change the dynamic in their favor.
We’ve all seen signs and internet meme’s stating something like this;
We offer 3 kinds of service
Good – Cheap – Fast
You can pick any two
Good service cheap won’t be fast
Good service fast won’t be cheap
Fast service cheap won’t be good
For many building materials buyers, this “rule” is an absolute fact. However, I believe that with proper planning and the right vendor relationships, it doesn’t have to be.
Every action has a consequence
In my opinion, there are many reasons that people and organizations become limited by the constraints of the iron triangle. It could be a lack of training, a shortage of time, or failure to understand the vision and goals of the company. Maybe the company doesn’t know either – it happens.
In companies and organizations that only award low-bid jobs, maybe they don’t appreciate the fact that all the parties at the table need to profit in order to succeed. Companies that aren’t profitable don’t stay open long – but for many buyers, this isn’t their problem. They can always find another supplier who will do the job the next time.
This unfortunate (and mostly correct) attitude is caused by several factors – much of it because of how we pay buyers. The incentives usually are simply to stay within budget and – if they are project managers – on time & within spec. There is no incentive via payroll for overall efficiency, relationship building, or product longevity.
The result of this approach is that buyers do exactly what they get paid to do – get the product to the job on time and for as cheap as possible. Sometimes this means that products used meet the baseline spec for the project, but fail before the average useful life for that material.
The real cost of lowest bidder procurement
Some suppliers will play the ol’ bait & switch, finding ways to add hidden costs and modifiers after the fact to turn a profit on a sale. They’ll also find ways to minimize cost by using inferior materials, lesser workmanship, delivery services, etc. Add-on products get sold above shelf price to increase margins from winning the low bid, etc. Project managers are so busy they just order product, pay for it, and wait till the end of the job to balance the books.
With labor, we see companies hire cut-rate fly by night operations with no or insufficient insurance, little training, or no experience – each creating its’ own set of problems. This doesn’t even begin to touch the issues caused by hiring subs with little to no quality control and poor workmanship.
You Get What You Pay For
I’m sure everyone in the industry has their own horror stories from using or being involved in lowest-bidder jobs, but one that sticks out for me involved a single family builder around 2005.
They were building a nice 2,200 square foot home on a quarter acre lot in a very high-end tract outside of Rochester. I sold the framing package, windows, and exterior doors and completed delivery a few weeks earlier. One morning I got a call from the builder asking me to come out and look at the windows because the reveals at the bottoms of the sashes weren’t straight.
When I arrived, it took about 30 seconds to find the culprit…not a single window installed on the job had shims on the bottom sill. They were all literally sitting directly on the framing lumber. As the house settled, every single window had shifted out of square. Luckily, they were still installing mechanicals and drying-in the house. Unfortunately when they called the framer out to the job, he told them “the windows were installed exactly how we got paid to install them”.
I was present for the argument between the builder and the framer that went on for about 20 minutes – until the builder agreed to pay to have all the windows removed and reinstalled correctly. They never used this framing crew again.
This same framing contractor was hired by another builder in another high-end subdivision down the road, this time to do a duplex townhouse frame.
We’d sold this particular model about 8 times prior, and had the material list down to a science, within $200 on a $34k framing package. Except, this time, the wildcard was this crew. The usual framer was finishing a large project for another builder and there was a foundation in the ground, so they went to bid…low bid won.
After the job was complete, the builder asked me why materials were $3,700 more than the last one they did. I had to explain that when the framer calls for an extra bunk of studs, an extra unit of OSB and a mess of long length lumber it costs more. We delivered it assuming it was a fluke or quality issue with what we delivered prior and we’d pick it up at the end of that phase.
In reality, this framer filled 3 dumpsters with cuts and waste and the builder didn’t question why until he was gone. There was less than $400 in material returned, so this particular crew cost the builder an extra $3k in materials, not including the extra fees for dumpster haul away and any other extras.
This builder also refused to hire this framing crew again. After this incident, the framer went missing for about a year and resurfaced doing the same thing to builders in another suburb on the opposite side of town. Had those companies talked to the 2 builders above, maybe they could have avoided the same issues (but I heard they did not).
You were warned
In the spring of 2016, I had a client looking for about 35 compact refrigerators for some apartments they had just acquired and finished turning.
We measured the openings and found a model we could make work from our go-to vendor. This particular vendor is known for having the best lifespan for fridges in the industry. For warranty and repair, their service is second to none, so it was a safe bet.
The customer thought the price was too high and found a cheaper unit from a manufacturer I can sell, but choose not to. The price we secured from this vendor was much less, but I still pushed back. I told the customer that I really didn’t want to sell them this product because of prior issues. They persisted and the product came in at around $2800 less than the product I wanted them to buy.
After one final warning, we processed the order, the product arrived, got installed, and all was well…for a month. The first unit failed, but within 30 days we swap for free (on us) and we got it changed. 2 months later, 2 more units had failed, service calls ordered and parts replaced. Within 12 months (on a product with a 12 month labor/materials warranty) 23 of the 35 units had failed.
If my math is right, the labor to manage the scheduling to do the inspection, make the call and meet the service tech probably ate up about $1700 of the $2800 they had saved…while they were still under warranty!
Then, the failures began to happen out of warranty. Of the 35 units originally sold, 29 unique units have failed and 2 prior repairs were repaired again. The customer paid for 8 of those repairs out-of-pocket, eroding the other $900 they “saved”. They have to make those appliances work for 6 years per their capital improvement plan, so they actually lost money (and are still losing!) by using that product.
While this is the most extreme example in my 20 year career (with any product, ever!), it demonstrates a massive (and all too common) issue. Many customers have a fixation on price over value, and eventually it catches up to them. Sometimes they can pass the cost on to their vendors, maintenance crew, maybe even investors – but they are costs that could have been avoided.
In the end, this customer switched brands and now uses what I recommended, but it was an expensive lesson. I try to be the subject matter expert on these products, and I don’t spend my customer’s money frivolously. Had the buyer done even a quick Amazon or Google search on the product they insisted on using, they would have found testimonials and reviews reinforcing my advice.
The reality is that buyers (especially project managers) do not invest tons of time researching what they buy. They have other things on their plates that keep them busy. They have a spec and expect their sales reps to provide product that will meet it. As long as the product meets the spec and comes on time and under budget, they get paid.
Is that really the priority the CEO would choose if they were to micromanage that process? I’m not saying they should, but if the CEO knew their buyer was putting product into a project that was going to fail early, would they still pay that buyer the same way? Should that decision maker get paid a bonus for buying the same thing 3 times in 10 years when they should only have bought it once?
Companies should work to analyze the impact of the products they use, focused on performance and lifespan. Too often, companies get stuck doing the same thing because “it’s in the spec”, but the spec doesn’t evolve. Fifteen years ago if you tried to sell a vinyl floor that was 30% more money, you’d get laughed out of the room. Now, LVP is everywhere and performs as advertised, despite being more expensive than sheet vinyl. Companies see the savings in lifespan and performance.
The time has passed for buyers paid on low price alone. Overall value must be considered and buyers need training to recognize and quantify that. Purchasing should be seen as the enterprise-wide operation it really is (and always has been). Organizations are developing processes to analyze how to increase efficiency and reduce waste. Mitigate impact to the environment and cut operating costs without cutting service…why should purchasing not be the largest player in that movement?
Now, you can pay a little more now for a product that can cut your replacement costs by 30-50% over 10 years. Fixtures can cut your utility bills enough to pay for the product and install over the same time frame. It should be common sense…but it’s not. The obsession with lowest bid continues – because we pay buyers to keep doing it.
If it sounds too good to be true, it probably is. Somehow, someway, it will cost you more in the long run. Don’t be fooled, every business at the table has to make money and they will find a way to do so.
There is no free lunch.