One operations strategy is to reduce manufacturing costs and increase sales. This strategy does make businesses profitable but is there a more profitable strategy? Does reducing costs of production have effects on quality?
Quality is important to consumers and reducing costs of production can impact the quality of the product. Whether changing some raw materials for better priced materials, or changing the process of production to be more cost efficient there can carry such a negative effect on the quality of the good or service that the good or service is no longer required. There is a way for a company to benefit from this negative effect.
Operations Managers can increase profitability by selling the new products to developing countries that could use the products. The reason a company could have more dramatically changing markets is that there is minimal competition and quite a lot of demand for products that are more affordable.
There is a solution for Operations Managers to resolve the issue reducing costs will have in the goodness to cost ratio. The problem with improving the ratio is there is far more cost to find the technology that makes a better quality product. Instead, it can be in the company’s best interest to reduce cost and slightly reducing the quality. According to an article found in Business Week called, “A Race to the Top”, written by Mike Shipulski, focusing on the cost to goodness ratio can be the better strategy.
The best way to carry out this strategy is in product design. Shipulski writes, “Immature technologies have improved goodness-to-cost ratios (that’s why we like them), but their output is low. But when a product is designed to require less output, previously immature technologies become viable. Sure, there’s a little less goodness, but the cost structure is far less – just right for the developing world”. High cost and low output is not profitable. However; by reducing costs and product quality, there must be a new market to desire the product. Developing nations are the perfect consumers for these new goods.
This article relates to what we are learning in our Operations Management class because this article shows light on to the benefits of globalization and a way to handle the decrease in quality when Operations Managers decide to cut costs.
Source:
https://d2l.depaul.edu/d2l/lms/content/viewer/main_frame.d2l?ou=173428&tId=1092153
This is a very interesting approach to operations management. I would never have thought that in order for a business to sustain their growth is by outsourcing their consumers. One thing I am curious about is the how the affect of the price will change. A developing country does not have the purchasing power nor resources that Americans do, so I would imagine US companies would have to adjust their prices accordingly.
I too found this approach interesting. I would have never thought to outsource consumers in order to grow. Like the above comment, I don’t see how outsourcing to developing countries would help growth if those developing countries are just that; developing. The price of the product would have to be cut dramatically in order to increase sales. This can be done if the cost of production is cut as mentioned. However, when cutting the cost of production to reduce product price, producers need to keep in mind quality. Consumers are price conscious but they also want good quality. There has to be some sort of medium where cost of production could be cut while quality remains either constant or slightly changed. Overall, I found that while there may be some benefits of globalization the overall quality of the product should also be looked at more heavily because it could result in more benefits than globalizing.
It is interesting to think that outsourcing can be a solution to increase profitability. I just wonder, same as the fist comment, how the price would be affected by selling it to developing countries. Also, as I was reading the post I was wondering what would be the impact of selling low quality products to other countries. Finally, is there an ethical issue involved on the event of selling low quality products just to be able to increase profitability?