Lean journey
Source : The Manufacturer US
Published : 16 Nov 2005 20:45
What a deal!
Anand Sharma on the dubious wisdom of slashing prices to the bone
Over the summer, a number of automobile companies, led by General Motors, cut prices on their vehicles in order to encourage consumers to buy cars. The employee-discount incentives were widely covered in the media, and they actually did encourage people to go out and buy new cars.
But was it smart business? Sure, consumers may have bought vehicles they might otherwise have put off buying simply because the price was right. But did the consumers really get a good deal? And did those price cuts really help the automobile industry?
The answer is a resounding “no!” Who has ever won by cutting prices alone?
The problem with a company using these kinds of incentives is that it’s a very shortsighted strategy—in fact, it’s totally upside-down logic. If you as a manufacturer cut prices far enough, as General Motors did, then you will lose money because you are selling the product for less than it costs to make (or nearly so). And suddenly you have no money with which to provide service to all those customers who bought your product at rock-bottom prices.
The result is that those new customers are likely to become disenchanted and vow never to do business with you again. So the gains made by selling a product cheaply are soon lost when you can’t provide service and support after the sale. In other words, the fix was a temporary one—and really no fix at all.
And while losing money over the short term can be an acceptable business strategy for a healthy business, companies that are struggling can’t afford to lose money at all and doing so could well sound their death knells.
For an automobile maker or any other manufacturer that is looking for ways to increase sales, and its customer base, the sensible thing is to find out exactly what the customer wants, make it and make it well. Nothing is better at enticing customers than a quality product that provides the features or solutions that the customer wants and needs, followed up by superior service and customer care.
Does this mean that you should never cut prices? Of course not. If you are able to lean your operation and make your products more efficiently and at lower cost to your company, then it makes sense to cut prices when doing so won’t affect profits. Porsche has done just that, while maintaining the high quality its products were known for, and in doing so, gaining new satisfied customers.
That’s why lean manufacturing is going mainstream. More and more manufacturers are realizing that going lean means being able to make quality products for a lower cost that their customers want to buy.
Unlike this summer’s price-cutting tactics of some automobile manufacturers—a practice that ultimately leads to feast-or-famine cycles—a lean business strategy enables manufacturers to connect with customers and eliminate waste. It fosters a culture of continuous improvement, making small changes all the time that can improve efficiencies and decrease costs strategically.
Lean doesn’t mean having to tighten one’s belt and endure losses in order to gain customers. It means running your company in a way that allows you to survive, and even thrive, in both good times and bad.
