Businesses have always faced cost pressures – some due to factors beyond their control, and some due to their own failings. It is management’s responsibility to grow profits and expand the business, and smart executives achieve this through lean manufacturing and by expanding customer base with better-value products and services.
Unfortunately, there are too many instances where executives try to achieve business goals by taking the easy (or lazy, or no-brainer) way out, namely cost cutting! Suppliers are squeezed for price reduction, a tactic which destroys suppliers’ viability and lowers quality. The American auto OEM’s were notorious for using this practice, looking for short-term profits, while driving thousands of suppliers into bankruptcy, lowering product quality and, in the process, helping Japanese automakers gain a substantial market share, starting in 1980’s.
Some company’s strategy to grow involves mergers & acquisitions (M & A). But, there are too many instances where M&A’s have led to excess capacity, a burdensome manufacturing network spread throughout locations with high-cost & difficult labour (unions). Additionally, M&A’s make it very difficult to manage unwieldy organisation structure and to be nimble during market changes. Another complicating factor involves managing cultural differences across the far-flung locations.
A text-book case study of this would be to compare the different approaches taken by American and Japanese auto OEM’s. About 20 years ago, when these companies desired to get into luxury vehicle segment (dominated by Mercedes & BMW), the American OEM’s took the lazy way out and bought European luxury brands (Jaguar, Volvo, Saab, et al), paying top dollars. The Japanese OEM’s developed their own in-house luxury lines (Lexus, Acura, Infinity). The results? predictable! The American OEM’s could not profitably manage the acquisitions, and after huge losses, divested them at fire sale prices, while the Japanese brands, developed from within, are doing extremely well.
The more successful companies, led by smart management, rely on the best-value products, which are based on quality plus innovation, and may rely on cost management, but never on cost reduction. Again a text-book example of this would be none other than Apple, Inc. which is riding high in the corporate world, based on its wildly successful line of “i-products”.
Not too long ago, it was an accepted practice at the American auto OEM plants to “inspect” quality into their products, by doing “inspection” of all incoming components, and of the finished products. At one such plant, where I worked for some time, a large group of employees inspected incoming parts, hoping to catch and remove non-conforming components. This practice did not help improve quality at all, but gave rise to the belief that “quality costs money”.
In reality, it is the lack of quality that costs and dooms a company! Thankfully, these days companies do recognise the role of quality systems in successful management of