301
See also: How fast to grow 44–45 ■ The value chain 216–17 ■ Make your customers love you 264–67 ■
Lean production 290–93 ■ Simplify processes 296–99 ■ Kaizen 302–09 ■ Quality sells 318–23
DELIVERING THE GOODS
I
n business, waste is anything
that adds to a company’s costs
that does not create a higher
output level, or lead to improved
customer satisfaction. Any money
generated from a reduction in
waste can help a business grow by
improving its competitiveness.
Joseph Juran (1904–2008) was
born in Romania and moved to
the US when he was a child. He
became an expert in quality in
business after working at Western
Electric in the 1920s and being
trained in statistical sampling and
quality control. Juran identified
waste as a factor that undermined
profit. He urged businesses to
constantly look out for opportunities
to reduce waste. For Juran, the best
way to do this was to improve
product quality and the reliability
of the production process.
Reducing waste
Waste in business ranges from
investing in expensive machinery
that does not meet the required
output level because it breaks down
regularly, to producing finished
products that fail internal quality
audits and are not good enough to
be sold. If waste of this type can be
reduced it should be possible to
raise output without having to hire
extra workers, spend more capital,
or buy in additional raw materials
and components.
According to Juran, lower costs
can help a company grow in two
ways. First, if average costs can be
decreased, the business could
choose to pass on the reduction by
lowering prices to consumers. For
example, if an initiative to reduce
waste leads to a 10 percent fall in
average costs, the management
could opt to cut its retail prices by
the same magnitude, and still earn
the same profit margin. Cutting
prices can help a business grow:
undercutting the competition on
price is likely to attract market
share. Furthermore, even in
markets where there is little
competition, price cuts will make a
product more affordable. The lower
price will widen the brand’s appeal,
and potentially create growth by
enlarging the target market.Reinvesting profits
Reduced unit costs can help a
company to enlarge its profit
margins. If such savings are not
passed on to the consumer, they
could be used to increase the profit
earned from the company’s current
sales volume. The additional profits
made from reducing wastage could
be reinvested into the business—
the goal being to increase sales and
to achieve growth. An efficient way
to make use of the cash saved by
reducing waste might be to fund
a new advertising campaign.
Alternatively, companies might
reinvest a significant proportion
of their profits into scientific
research and new product
development. Theories about the
life cycle of products, technological
advances, and changing consumer
tastes suggest that most products
have finite selling lives in the
market. If these investments pay
off, the next generation of products
will incorporate the latest must-
have features and benefits that will
appeal to consumers and translate
into high sales. ■Volkswagen
In 2012, Volkswagen announced
its intention to become the world’s
most environmentally friendly car
manufacturer by 2018. To achieve
this goal, the German company
set out to reduce waste during the
production process.
When cars are produced, sheet
steel is cut out to form parts of
the chassis. If this process if not
managed effectively, expensive
steel can end up being wasted
as off-cuts. The management at
Volkswagen achieved a 15 percent
reduction in the amount of steelused to produce each car by
investing in new cutting
machinery and by changing the
dimensions of the steel sheets to
reduce off-cut waste. In the paint
shop, the amount of paint used
to produce a vehicle was halved
by installing state-of-the-art
painting robots.
These savings meant that
Volkswagen could reduce their
prices. For example, the price of
a Golf Cabriolet was reduced by
approximately $10,600 in June- Reductions like this
contributed to a 6 percent rise in
global sales by May 2013.
Paint robots at this Volkswagen
factory help reduce employee costs,
and can be programed to use the
minimum amount of paint required.