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

 

Many companies focus on production, sales, marketing, and efficiency. The companies that do certainly have potential to earn revenue, but what about production costs, or the one part those companies are not concentrated on, waste disposal costs. Companies that produce items, also produce waste. Waste is created from every part of the production process. Even daily business activities produce some form of trash or waste.

Operations managers who are worried about costs could find solace in environmentally friendly practices. Costs can be reduced by the use of By-product Synergy (BPS). By-product Synergy is reusing wastes from products to create other products. For example, a steel company can use steel waste to produce concrete.

HBS Assistant Professor Deishin Lee conducted research to see how beneficial BPS can be. Lee’s research focused on industrial processes and Lee used an analytical model to prove her point. The results of her research were companies that use BPS have a potential advantage, reduced costs, and successfully found a new source of revenue.

Instead of throwing things out, people find new ways to use waste. This gives those companies a way to look at their own products in a different light. Companies that use BPS also think outside of the box. Creating new products, and expanding the product lines becomes a little easier, since finding new functions for products are similar to finding new functions for waste. The benefits of BPS is that it reduces the cost of operations by reducing the cost of waste, and also increases revenue by either selling the waste to manufacturing plants that can use it, or creating items themselves.

Operations Managers need to consider how to cut costs, increase efficiency, and dispose or not dispose of waste. In order for a company to make the switch to a system that reuses their waste. That company would have to have an owner willing to make the switch, people holding upper positions in the company who are also willing to make the switch, and an amazing operations manager who will do the research and create a plan.

Once the plan is created, the operations manager would then have a project to oversee and that means they need to design a very good project plan, find the critical path, and have close to perfect estimates for crashes. This is an elaborate project which will be difficult. That operations manager would have to redesign production process that incorporates By-product Synergy.

A company that only focuses on their manufacturing process and not their waste only focuses on half of the production process. The questions they are most concerned with answering are, what is the product? How is the product made? Where does the product go?

A company that use BPS also asks, “what are your resources, and how can we organize to maximize the value we create?” (Quote found in article). This is also a new way of thinking and looking at efficiency, which is a very important concept that operations managers are always looking at.

 

http://hbswk.hbs.edu/item/6800.html

Article by: Michael Blanding

 

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