Too much of a Good thing

Following two meetings and inspection tours in March and May 2000 of a brand new, state-of-the-art linen rental laundry in Germany, I decided to take a look at automation in the industry to see what I could learn.

What pricked my curiosity was the obvious malfunctioning of the automated machinery. The owner was quick to point out that the 90kg sacks transported on an overhead conveyor system represented the very latest in automated feeding technology. The automated linen sorting system also looked impressive. However, when I asked why so many pieces of linen were lying on the floor, the owner said there were still bugs in the equipment, which needed to be worked out by the supplier. Several weeks later the company went bankrupt. Apparently the liquidator has had offers for the real estate and the factory, but none for the machines. They will probably go back to the manufacturer, to work out the bugs.

Why bankrupt?

Why did the company go bankrupt; did too much “state of the art” automation have something to do with it?

Recognising that the malfunctioning machines would probably have been put right eventually, was this business failure a case of too much automation for the wrong company at the wrong time?

The company was Wulfener Reinigung in Dorsten, some 60km north of Dusseldorf. It specialised in hotel linen and had grown rapidly, especially by cutting prices below those of the competition. The company’s turnover was nearing DM 20 million (£6.5 million ) and the directors were aiming to have the biggest rental supplier to the German hotel industry. Management admitted that they were acquiring big contracts at or possibly below break-even prices. Before the decision to build a new laundry with the latest automated equipment, Wulfener had been running its business from an old, relatively small laundry with very little automation.

Recognising that a sizable expansion under these conditions was not feasible, might Wulfener nevertheless have been able to continue its low cost, largely manual operation until it was ready to jump into the world of automation? It is important to know that most of Wulfener’s workers were lower cost Turkish women.

Wulfener’s owners had outside support in their misguided gamble on expansion and automation. Their biggest new hotel customer helped to push them over the edge by guaranteeing leases for its vehicles and even helping to lower some of its supply costs, thus giving Wulfener a false sense of security. The machinery supplier played an important role in the demise, as Wulfener was clearly not ready to adapt to the demands of an ultra-modern, highly automated operation.

It is speculative to say what would have happened, “if”, but lessons can be learned from this failed business strategy that might be particularly useful for smaller and medium size companies. The main lessons I see are the following: Every company must decide what types and levels of automation it needs and can afford based on its plan and strategy, which must be based on realistic analyses of the markets and the competition.

Automation must be weighed against other competing production factors, including the availability and cost of workers. Timing is of the essence. To automate before a business is ready for it can be life threatening. It appears that Wulfener might have survived (at least longer than it did), if it had been able to continue supplying its customers. However, when the automated laundry failed to deliver, there was no hope, even if the prices had been renegotiated.

The title of a recent Laundry & Cleaning News article (May 2000) stated that “Size is not important” when deciding to introduce electronic rf identification systems. This may be true as regards how the microprocessors are used by small and large laundries, but it does not seem possible in terms of business aims and strategy.

In fact, when planning to automate a laundry or investing in high tech equipment, one size does not fit all. For a laundry with turnover of perhaps £5 to £30 million, there are different expansion and investment criteria than for a laundry turning over £100 million or more. In any case, good management and a good plan and strategy are more important than size.

Even in an economically and technologically advanced country like Finland, size and timing do matter.

  In September 1994, the US “Textile Rental” magazine featured Lindstrom’s Vaasa laundry and asked “Have we found the most automated garment plant in the world?”

That laundry was indeed a state-of-the-art operation by any standards. Nevertheless, it was closed a few years later and apparently still stands empty. According to Lindstrom’s owner, Jukka Roiha, there was nothing wrong with the machinery and automation. The laundry was too small and in the wrong place for expansion. In effect, Lindstrom’s business plan and strategy was not sufficiently forward looking when investments were made in the Vaasa plant, or they simply changed sooner than expected. It seems clear that the investments of time, money and effort associated with building and outfitting that operation were not as effective as they might have been.

Automation is only one of many tools laundries must evaluate when preparing business plans and strategies. I have attempted to depict the most important factors affecting the textile rental industry in a flow chart. Each of these five variables in what I call the “Success Equation” is based on simple questions. The answers to these questions will determine whether a company’s equation spells success.

Knowledge and Understanding: How complete and current are my knowledge and understanding of the industry, the markets I serve, and my most important competitors.

Which companies in the industry and most importantly, in each sector, are my competitors? What must my company do to succeed over my competitors?

Plan and Strategy: Are my company’s plans and strategies well founded and forward looking?What is my company’s position in the industry and in those sectors in which we operate?

Where do I want my company to be in five years time? What must I do to achieve this?

Strengths and Weaknesses: What qualities and strengths does my company need to succeed? What are its weaknesses and what can I do about them?

The “Perfect” Product: What does my company need to deliver the “perfect” textile rental service at the best possible price? Can we develop a unique selling proposition?

Markets and Customers: What are my markets and who are my potential customers? What do I need to do to win and retain customers?

Successful companies

Every successful company will have its own, unique, answers to these questions. The owner and senior executives will understand the industry and its dynamics and try to understand what the most important companies in the industry are doing and why? There are no short cuts in what is a constant learning process. Without knowledge, understanding and good judgement, no amount of finance and automation can ensure success.

Is there a rule or an equation to help a company to decide the value of investing in more automation compared to other options? No!

Each company must decide its own unique automation requirements. What is good for big market leaders such as Sunlight in the UK, Elis in France and Mewa in Germany is not necessarily good for smaller laundries. As well as driving textile rental companies into the future, automation, as shown in the case of Wulfener Reinigung, can also be a factor in driving them out of business.