October 26, 2020 Jacob Feutz
The Real Value of Off-Site Manufacturing
The sales pitch caught your eye. The demo seemed rock solid. Your team thinks the solution would really improve the way they work. It’s a radically different approach than you are taking now. You’ve got the quote; now how do you evaluate the value of what’s in front of you? This is a common conundrum when evaluating off-site manufacturing strategies, especially when working with a third party that’s presenting a unique solution that you can’t just put out for bid. At Excellerate, we’ve got a few recommendations for best practices in determining the real value of off-site manufacturing.
First, a common gut reaction is, “What would it cost me to do this myself?” Can you take the work off site, but self-perform? It’s a very logical ceiling to place on what you’d be willing to pay, but there are some things you need to make sure you factor into the number you come up with. What additional floor space, equipment or tooling will you need to invest in to do it internally? Do you have capacity in your existing workforce to do this? If not, what resources are you going to have to dedicate to hiring them? What about the higher skilled engineering, manufacturing or management resources to set it up; is this project the best use of their time? And finally, what additional risk are you taking on by bringing this in house?
If you determine that doing the project in house is off the table, what are the considerations for doing it off site? “What is this going to save me in dollars versus doing it on site?” An initial estimate should consist of the number of hours the scope would remove from on-site work multiplied by the base labor rate. This is a good start, but you’ll need to also factor in indirect costs like reduced superintendent/management time, as well as lower equipment rental costs, including operator time. Even things like fewer job-site tools and radios required can add up, and reduction or elimination of worker overtime can make a big difference when looking at the value.
My colleague, Nate Bevers, presented the benefits of taking hours off the job site in his recent blog post. Somewhat less clear but extremely important to consider are other intangible benefits. “Will this improve my job site safety? Can I impress my clients with this innovative approach? Can I fit in another job if I get this one done quicker?” There are a lot of benefits to taking labor off site that should be considered when approaching the complete value story. Be sure you consider them all when making your decision.