Memo
Getting Wasted?
The following list of materials is typically wasted, day in and day out, week after week, year after year. Most companies feel that this kind of waste is normal. Therefore, they justify and absorb it. We don’t. We recognize that reducing waste creates more profit and a competitive edge. Ultimately, by that competitive edge we can gain a greater market share of available work and create even more profit through greater volume. It’s just good business to waste less.
To illustrate just how important reducing waste is, we have itemized the average expense per house for what is often considered “normal waste,” and then multiplied those losses by the number of houses we do. We’ve projected these figures estimating weekly, monthly, annually and total losses to date. We think you’ll be amazed by the amount of money “getting wasted.”
Average waste per house
1 8’ stick of unfinished bullnose
$1.64
1 8’ stick of unfinished regular
$1.01
1 8’ stick of finished bullnose
$6.14
1 8’ stick of finished regular
$3.91
1/2 box of topping mud
$3.10
1/2 box of all purpose mud
$3.10
1/3 roll of Perfa-Tape
$0.92
1 sheet 1/2” board (doesn’t belong in the count)
$33.76
1 sheet 5/8” board (doesn’t belong in the count)
$36.68
1/4 box of screws (left behind, piled or spilled)
$6.73
1 pc of resilient channel
$3.23
What would normally be considered average waste per house by a
production drywall company doing the kind of volume we do is $100.23
Average # of houses per week 30 = $3,006.82
Annual losses = weekly losses x 52 = $156,354.58
Estimate of total losses in total years in business x 27 = $4,221,573.61
These figures help us to see how critical it is to keep our counts tight and our waste at a minimum. As we do, we gain a competitive edge and create a profit margin that doesn’t exist in other companies. Let’s work together at the problem of unnecessary waste and loss counts. It’s in everyone’s best interest!
Thank You on behalf of
Alta Drywall
The last thing I want to do, particularly when writing an article on waste, is waste anybody’s time. So let’s get right down to business.
The Memo
The memo referred to in this article was first circulated 25 years ago. Since then it has been revised, updated and circulated again and again. Our employees and management are well aware of the high cost and negative impact of waste. However, I have never relied on the text of this memo and the numbers to do all of the talking. It takes some explaining. When it comes to convincing management and employees of the importance of waste reduction and the potential loss of ignoring what many believe to be “normal” or typical waste, we have found this memo to be an effective tool. However, without such commentary naysayers tend to nit-pick its findings and question its legitimacy. At the same time there are always those sincere recipients of the memo who have honest questions that simply need answered. Consequently, some commentary must be included in order for the memo to be as effective as possible.
You may also question the details (your list may differ from ours), pricing (which isn’t current and varies from region to region) or the meaning of certain phrases and so on. Even though some may find fault with a particular point, what is unmistakably clear is that waste translates into a serious cost, and waste reduction results in serious savings, especially over time.
Before we get into the list of specific materials being wasted, let me say that everything about this illustration is deliberately conservative approach is so that the example holds up under scrutiny and maintains credibility. I intentionally keep it conservative so that the lesson it teaches can’t be denied or dismissed. In other words, when it comes to waste, I believe the amounts listed to be less than what actually tends to occur. In addition, these amounts are typically dismissed as insignificant and “normal” by the average tradespersons or, in many cases, contractors themselves. That misconception is an important part of what the memo is intended to debunk.
Make no mistake about it: I believe the typical waste to be greater than the list of material used in the illustration. One might even say an entire box of both types of mud or twice the amount of any material listed could easily be wasted through the course of finishing an entire house. Nevertheless, I didn’t need to double the quantities to make the point. The conservative approach and the loss of $4 million is convincing enough. But you could reasonably double these numbers and ultimately that $4 million would translate into $8 million in waste, and that wouldn’t be exaggerating by much, if at all. (By the way, I’m currently nearing the end of my drywall career and I could use $8 million in my retirement account about now.)
This particular memo is limited to our residential piecework division, but you can apply this to commercial companies or divisions as well. Residentially or commercially, waste is waste. Believe me, piecework or hourly compensation are both governed by productions. The productions are based on the installation of material, which drives the overall cost of any project. Waste reduction, residentially or commercially, regardless of compensation being piecework or hourly, matters big time. Doing more with less is always a good idea as long as you don’t jeopardize quality, service or schedule. So whatever you do, don’t make the mistake of thinking that this doesn’t apply to your business.
Even though you may use different materials or terms to describe those materials, the larger point is that waste is occurring. When carefully considered, no matter what you call it, the cost of that waste is very significant. Consequently, businesses like ours need to recognize that and measures need to be taken to identify, reduce and discontinue waste as well as any practice incentivizes the work force to waste. The way in which we incentivize waste is another area we’ll deal with in depth later. Your knee-jerk reaction to incentivizing the work force to waste may be to deny it, but trust me, it’s all too common.
Clarification of Terms
Metal. Corner-bead or Bull-nose.
Finished. By finished I’m eluding to footage that has mistakenly been added to material count either intentionally or unintentionally, but it’s footage that isn’t actually there. That happens when inaccurate counts are provided and accepted as accurate, or mistakes are made and not corrected. If unnecessary metal footage is being paid, the waste is compounded by labor costs that drive the overall costs up significantly; for example, any footage that is mistakenly accepted as legitimate but really isn’t footage that the contractor should be paying labor to install, finish and so on. Such footage is extremely expensive and completely wasted. Note the difference in cost listed on both finished and unfinished metal or bull-nose and you’ll see what I mean.
Unfinished. This is metal that is wasted by not using proper lengths or cutting it unwisely, leaving large pieces behind, metal that gets damaged and is unusable etc. The cost is less than “finished” costs since you are not paying for installation or finishing, but its still money being wasted.
In the count. Any material that is a part of the footage you pay labor on.
Another question one might ask is why the cost of drywall is so high in the example used in the memo. The cost is driven up because you pay not only for the material but also for installation, finishing, texture, cleanup, blade and caulk as well as any pickup costs. In other words, if your count was accurate, you would not need that sheet, nor pay for the labor associated with the mistaken belief that you do. As you will note there is some serious money to be saved for those who know how to drive the total number of sheets needed down to the bare minimum necessary for an accurate count.
Another cost that can be easily overlooked but is nonetheless relevant (yet not listed in our memo) is the ridiculous cost of delivering and disposing of the unnecessary waste an organization generates. Think of it: trucking, labor for handling, delivery, removal, the material cost itself, sales tax (if applicable) and the ever increasing dump fees for the removal and disposal of such materials. Material that you bought unnecessarily and in some cases paid to install! I think everyone will agree that delivery and disposal costs are significant and, though difficult to quantify, should be included. Costs like these could easily be overlooked and go unconsidered, but they are very real costs that exacerbate the problem and further support the case for waste reduction.
Accuracy Is What Matters Most
As your business strives to reduce waste and obtain accurate counts, it may appear at times to the work force that you are attempting to cheat them. (We’ve faced such accusations.) There is no doubt that throughout the industry there is a lot of cheating going on back and forth between companies, the work force and management. Steer clear of that. If you’re going to achieve the level of accuracy and waste reduction that I’m suggesting, you’re going to have to be willing to pay for exactly what the count is. Cheating the work force undermines the effort. This is a joint effort and everyone involved must treat one another fairly.
When some accuse you of attempting to cut the count too tight, simply insist that your goal is accuracy, nothing more and nothing less. Then, of course, make sure you live up to it. Your company’s credibility and reputation is at stake. We take it a step further and show them why accuracy is so important by reviewing the very memo used in this article. When we shave off that final sheet as a count is set and the drywall crew wants to know why, we show them the huge cost to the company and the minimal amount they stand to gain by leaving waste in the count.
For example, let’s say you pay a crew $5 (again, merely hypothetical pricing) a sheet and it’s a four-man crew. Meanwhile, they insist that they need two additional sheets to complete a house, but you know you are able to do it with two fewer sheets. Doing it their way they gain $10 that is split four ways, or $2.50 each. How much did the company lose? If the company mistakenly pays out labor on the higher count to every facet of the organization believing that the two sheets were needed, the loss is close to $80. It just doesn’t make sense and when we show them why, they usually understand why we take such a hard line on waste.
The Age-Old Struggle: Incentivizing Waste, a Broken Model
For as long as I’ve been I’ve been in this business (since 1976), I’ve witnessed what I’ll call an age-old struggle. I think I’ve seen it all, but probably not. I’ve seen installers cut up pieces of drywall and stick them into wall cavities in order to boost the count and their earnings. I’ve seen them steal sheets from every house in a subdivision so that the excess isn’t evident and counts don’t get adjusted properly. I’ve seen installers deliberately make very poor choices as to how they use material and leave huge piles of scrap, large pieces of metal left behind or damaged, not to mention piles of nails and screws here and there or all over the floor, partial rolls of tape, half used boxes of mud—you name it. There’s a one-word description that describes it: Waste! They’re “getting wasted!” In some cases it’s deliberate and in some cases they just don’t know any better or care, but waste is the rule and not the exception—unless you change that.
As I’ve considered the problem of waste, it’s become apparent that our model is broken. As business owners, when we pay people purely based on footage (material used), we set ourselves up for waste. We create a conflict of interest with the labor and the company when it comes to material waste by paying labor by the foot or square foot. What we’ve got is the fox guarding the hen house. Even management may be paid based on footage creating the same type of conflict of interest at the upper levels of our organizations. Even if we have our management on board with regard to waste reduction, and though we battle our way to the lowest possible footage so that our counts and labor costs are as low as possible, the moment labor gets the chance to waste, they will do so in order to earn more. Our efforts are so shortsighted and insufficient when it comes to curbing waste and getting labor on board when it comes to waste reduction. There is a better way, though few companies realize it exists. Though I’m not going to come right out and tell you specifically what to do, I will give you a hint: What if compensation was based on wasting less?
The Solution: Creating a Win/Win
I’ve been thoroughly exposed to Stephen Covey training and became a certified Stephen Covey facilitator about 11 years ago. I’ve repeatedly studied and taught the various teachings. I highly recommend it. The Covey concept that applies here is the “Seven Habits” concept of win/win. In short, what’s taught is that there are four possibilities when it comes to deal-making and relationships. They are win/lose, lose/win, lose/lose or win/win. A win/lose relationship is one in which I win and you lose. From the employees’ perspective, that isn’t far from what we tend to strive for as we attempt to minimize waste. The company wins and the employees lose. As a response, there’s the typical position the work force takes, which is to try to reverse that and move into the winning position. They strive to create their own win/lose, which is where it usually winds up and the organization takes the losing position. The next option is the lose/win relationship. No one wants to take the lose/win approach because no thinking person volunteers into the losing position. Next option is lose/lose. I don’t have to explain why a lose/lose approach doesn’t appeal to either side. So then, Seven Habits teaches that all deals or relationships should be Win/Win or no deal.
Although a few employees will actually care and cooperate with a waste reduction plan, the overwhelming majority never will. Quite simply, they just don’t care. They don’t have any reason to care because we fail to give them one. In fact, inadvertently we’ve given them reason not to care about waste. Dollars and cents! They actually get paid to waste.
Take the tyrannical approach that rails against management and the work force for being wasteful. Fire the flagrant employee who just doesn’t get it. Scare the wasters into wasting less if you think you can. I’m here to tell you that unless you give them a real reason to care, you’ll never get close to the level of waste reduction that’s achievable if you do. If you develop an approach that incentivizes waste reduction, that and that alone will give your organization the ultimate edge when it comes to wasting less.
It can be done. But I can’t give you the specifics of how we create a win/win between the work force and the organization because our methods are the result of many years of experience and careful thought. They have been developed internally and are proprietary. I will tell you that in order to achieve the level of waste reduction you should be striving for, you’ll have to craft a win/win arrangement with your management and work force that works best for you and your company, an arrangement that incentivizes them to waste as little as possible. Otherwise you can forget it; continue the age-old struggle and keep on incentivizing them to waste material every chance they get.
The Compound Benefit!
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t, pays it.”—Albert Einstein
When it comes to the compound benefit of savings like those described in the memo, it is not unlike what Einstein referred to in the quote above. He was referring to interest that is added to principle that then earns interest—compound interest. He called it the eighth wonder of the world! Why? For one simple reason: It’s because of the long term growth potential. For example: Which would you rather have, a million dollars today, or one cent doubled every day for 60 days? It’s a trick question. The penny doubled every day compounds its way into about $5 million in 60 days.
Imagine a smart business that saves the money illustrated in the memo and then pockets half and puts the other half to work improving their business. Let’s say they use the savings to buy that cutting edge software, better technology, fuel efficient vehicles, offer better employee benefits than competitors, have that otherwise unaffordable holiday party, attract talent and offer safety incentives—all to become more competitive and, as a result, gain greater market share and the best work force available.
The benefit of the savings gained through waste reduction when reinvested into the organization compounds dramatically. It has the capacity to catapult the organization into a whole new dimension and dwarf competitors. It creates an otherwise unobtainable opportunity that is usually just getting wasted!
Doug Bellamy is president of Innovative Drywall Systems Inc. DBA Alta Drywall, Carlsbad, Calif. His company is also a winner of the 2010 AWCI Excellence in Construction Safety Award.
