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12.11.2019

When Cheap is Expensive

Batch 64 - Insights - Articles - Why Cheap Is Expensive

Article by Aron Rosenthal

Earlier this year, one of our clients dropped our coir product for a competitor’s. We pride ourselves in our unwavering craftsmanship of creating only the highest quality products and admit this exit came as a shock (not to mention it’s never fun to lose business).  But eventually we learned the reason for their decision, and as odd as it is to admit, we could hardly blame them. In an attempt to reduce costs, the customer’s grow operation switched to a low-cost coir product estimating it would save them $4,000 a year. We believe every business should take operating costs seriously and we’re certainly no exception. But not long after, troubles emerged and we got a call from the head grower.

 

 

“The plants just aren’t growing right.” Angry and confused, he hadn’t seen a situation like this with coir and wanted to talk. “The coir doesn’t drain and the roots won’t grow. One day the plants looked healthy, the next day they started to die.” Then he dropped the bombshell. “We’re going to get zero yield,” he confessed with a sinking voice. In horticulture, there is an age-old maxim all growers seem to intuitively understand: No roots, no fruits.

Not long after the call, we visited their facility and confirmed what the grower had described. The coir was compacted and the roots hadn’t penetrated beyond the first few inches. In other pots, the coir was so waterlogged it took the form of what we can only describe as a big, sloppy, blob of mud. Eventually we were led into the flower room and the ensuing visual slammed home how devastating the situation truly was – half the room was empty. The cheap coir had killed more than 300 plants which our customer believes amounted to a loss of over $100,000. Yes, you read that correctly. An attempt to save a few grand resulted in a six-figure loss. In the immortal words of Homer Simpson, “D’oh!” But then again, whereas financial losses can certainly be ironic, they’re almost never funny.

 

 

It’s a lot easier to know what we should (or shouldn’t) have done once something has already happened – the whole hindsight’s 20/20 thing. But in the over nine years we have been manufacturing products for the cannabis industry, we can tell you unequivocally these situations are not uncommon. New vendors attempting to cash in on the green rush seem to pop up overnight offering unbeatable prices in the same breath as the promise of higher yields. Yeah, sure. We can’t help but think that if the grow had consulted with us beforehand, we might have convinced them it was a bad idea and avoided a very expensive lesson. 

So if we could turn back the hands of time, this is essentially what we would have shared; and we hope this will act as a warning to other grow operations as to the real and costly dangers that lurk behind every corner you may be tempted to cut.

 

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Cannabis operations, like all companies, are in a relentless tug of war as they try to scale and increase profitability – one side pulling to lower costs, the other to increase revenue. Increasing revenue is a much easier conversation to have because a strategy almost always requires making a capital investment in order to grow sales and production (output). But the same cannot be said about reducing costs in which knee-jerk decisions can paradoxically result in an increase in costs and loss of revenue which is precisely what happened to that rather unfortunate grow.

Put succinctly, the grow fell into the classic trap in which a company sacrifices quality at the altar of profitability. Unless your objective is to produce a cheap and low-quality product, this strategy almost never works no matter the safeguards you put in place or how well you think you’ve planned for the intangibles. To provide another example in which cost-cutting resulted in almost unimaginable consequences, we need to briefly digress from the cannabis sector and turn to a company that is not known for making half-baked decisions – Boeing.  

Faced with the threat of losing a sale to its European rival, Airbus, Boeing rushed the design and imposed strict budgets during production of its 737 Max planes. One employee, who was a member of the project team and recently filed an ethics complaint, described the culture as, “…more concerned with cost and schedule than safety or quality.” 

This, coupled with inexperienced pilots who didn’t know how to respond to a software systems malfunction, is what experts believe caused two crashes that killed 346 people and erased almost overnight $27 billion from Boeing’s market value. The 737 Max is still grounded and more software problems are emerging. Some have even linked this debacle to Boeing’s decision to fire senior software engineers at the same time they were outsourcing their work to overseas subcontractors which in turn hired unseasoned engineers, who had scant experience in the aerospace industry, at a paltry $9 an hour. 

Boeing’s troubles are ongoing and the lessons are extremely relevant to the cannabis sector in part because it illustrates that even sophisticated industry titans, with their hyper-intelligent executives, make ill-considered decisions when it comes to cutting costs. Also, much like Boeing’s complex engineering and manufacturing systems, grow operations are exceedingly complicated and fertile grounds for making tragic missteps.

We talk to a lot of commercial growers and to give you an example of how demanding and complex their days can truly be, we’d like to compare how they describe their ideal day to the genuine reality.

This is what growers wish they were doing:

  •     Harvesting
  •     Proactive plant health care
  •     Predictive maintenance
  •     Consumer demand planning
  •     Continuing education/research
  •     Optimizing their standard operating procedures (SOPs)
  •     Making their team’s job easier

And this is what they tell us they are really doing: 

  •     Playing catch up on missed raw material deliveries
  •     Making unplanned purchases
  •     Googling solutions to previously unseen plant problems in online forums
  •     Managing unskilled employees
  •     Unloading late deliveries
  •     Quality control on inbound ingredients
  •     Mixing dangerous chemicals
  •     Putting out fires (literally)
  •     Paying invoices
  •     Keeping track of non-specialized vendor deliveries
  •     Washing pots
  •     Up-potting
  •     Moving materials from storage to the grow area
  •     Dealing with government regulatory agencies
  •     Trialing new products

This is hardly a complete list and we apologize in advance to all of you who would like to see us add the long list of additional tasks you do on the daily. The point is, growers are working in highly complex and dynamic environments and with plant and soil biology that doesn’t always play by our rules. Sacrificing quality is the last thing you want to do in this type of environment because it can create a systems failure that will quickly spiral downward into an unrecoverable nosedive; and this is especially true when an inexperienced cultivation team is in the cockpit.  Thankfully, the victims are plants and not humans, but it’s painful nonetheless as it reflects on the bottom line. 

Also, when you work with cheap products and cut corners, you expose yourself to costly risks which are likely to include lower yields, a substandard product, unhealthy plants that invite disease and pests (which may require you to purchase additional solutions), and higher labor costs. This will not only erase whatever savings you experienced by sourcing the cheaper product, it will end up costing you much more than if you had done nothing at all.

This means your goal, as a grow operation, should always be to source from vendors that are producing the highest quality products and with the greatest consistency. Are you going to pay a bit more? Of course. And by now you should understand this is a bargain for the grow operation because when you pay a premium for high-quality products you are receiving, built into those products, the quality control measures the manufacturer has established at its facility so that you aren’t frantically running about trying to diagnose and fix problems at yours.

This is why at Batch 64 we are committed to manufacturing products that will deliver the quality and consistency our clients have come to expect. The majority of our clients have been with us for over five years because they understand quality products increase their efficiencies, produce high-yields, improve product quality, and reduce labor and input costs.

Speaking of clients, we got another call recently from that same grow. This time, they placed an order for another pallet of the product they substituted for the cheap coir and shared the good news that they are slowly recovering. They also encouraged us to share their story and to let other grows and growers out there know that price is what you pay, but value is what you get.

 

Aron Rosenthal
Aron Rosenthal

Aron Rosenthal is an independent researcher, writer, and development consultant. He has helped implement some of the most innovative social and economic development programs in Central America designed to support women entrepreneurs. He has also worked closely with Waste Farmers, the makers of Batch 64, on many initiatives over the last 10 years and shares with the team an endless devotion to protecting global peatlands.

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