Throwing good money after bad often happens without the realization that it’s being done. We’ve worked with several clients over the years where the common thread across projects has been an investment in something of considerable capital value that simply isn’t well suited for the client’s operation. Sometimes it was through the purchase of an existing facility, outfitted with some level of automation, that at first pass appears to be suitable for the business.

Other times, systems have been implemented that were improperly designed for varying reasons but in the end didn’t, and couldn’t, deliver the intended results. Often, short term solutions or band aids are applied in the operation, particularly during seasonal peaks, to offset the shortcomings of systems that aren’t delivering as expected.

Root Cause Analysis

When such investments are made, and the results don’t meet the design expectations, every effort should be made to resolve the underlying reasons. Solid, root cause analysis should be completed, redesign options considered, additional spend approved if needed, and modifications implemented. This course of action should be taken and maintained up to the point that all reasonable options are exhausted.

Balanced Input from a Cross Functional Team

The project team involved needs to include members across all business functions, operations, maintenance, finance, HR, etc., to ensure everything is considered from all perspectives, and the goal of resolution with a positive return on investment is achieved. The typical problem we’ve observed occurs when the balance across the team shifts towards one business function having a louder voice than the collective team, generally when someone from that area of the business was a decision maker in the original investment, but that really shouldn’t be of concern if the goal is to do the right thing, with a view forward.

Addressing a Failed Investment

One example involved automating an order fulfillment operation with a system to convey and sort full cases to pallet build stations, which never worked as intended and the operational improvements were never realized. After multiple attempts to determine how to make the system work, it was abandoned, moth balled, and a conventional pick to pallet operation was implemented, which immediately delivered better performance results overall. As the business grew steadily, capacities were strained and scrapping the abandoned MHE system was proposed as it occupied valuable space that was needed for staging and storage of goods, or perhaps an alternative automated system, better designed for the specifics of the business. But no alternatives could be justified financially as the book value of the abandoned system sat on the first line of any alternative in a return on investment analysis. As capacities were exceeded, on site trailers were utilized to hold excess inventory, off-site storage was the next step to support the upcoming peak season and throwing good money after bad seemed to be the accepted answer.

In situations like this, where the write off of a major asset is being considered, the team needs to establish early on that they are not facing a typical operational assessment, where improvements are going to be compared to the baseline operation and justified by a typical return on investment analysis. The thinking needs to be more long term, with a planning horizon several years beyond the accepted amount of time for realizing positive returns. The value of the cross functional team, and the varied perspectives they bring to the table, is key to taking a more holistic view of the situation, where the business is going, and what is best long term. More strategic thought needs to go into the project objectives. A view of the business’s stability and forecasted growth, maintaining established service level agreements with customers, resiliency of the business, and other critical business elements need to be questioned and agreed.

Conclusion

If these key elements are challenged and confirmed, there’s a strong customer base and the value realized from the business is sound, an investment in the future is justified. Short term solutions have been explored, don’t exist, and that approach can be abandoned. Foregoing the application of band aids such as seasonal fixes with on-site trailer storage, third party lease space agreements and the like are sound for a transition period when growth strains capacities. But planning for the inevitable, if the business believes in itself, is the right way forward. Stop throwing good money after bad, accept the situation, and stay the course for sustaining core values and offerings to your customers.

Author: Brian Shepherd