Within any business there are multiple factors that a customer can imprint on to recognise a brand and associate with quality. Businesses can use the customers intuition to their advantage, targeting on the key aspects of a quality product in order to maximise return. Here is a list of the common points a business can tailor in order to maximise their revenue;
- Profitability, Businesses must decide how much profit each product or service should undertake, whether it be a large return or a small one. Customers may be willing to buy a product purely on its premium price point.
- Customer Service, Businesses may wish to place the quality of their product on par with the quality of its customer service. Poor customer service could reflect badly on a quality product and vice versa.
- Competitiveness, Businesses may wish to use pricing in order to undercut the cost of its competitors. Businesses may also want to take on new locations and footfall in order to maximise profitability.
- Supply Chain, Business may cut costs and use cheaper suppliers, however unethical or environmental considerations could be overlooked and come back to haunt businesses later.
- Reliability, A product that is unreliable or prone to failure may mean that customers look elsewhere for new products, defined obsolescence could damage the perceived quality of the product as well, If it were to fail after a certain time because of a weak part, customers may feel frustrated having to buy new ones.
- Brand Image, For some customers a brand could be vital to what product they purchase, If a brand is damaged, it could affect the sales of businesses massively. Some businesses may also struggle to maintain a positive reputation if the business specialises in cheap services, such as transport or hotels and may not be too affected by bad publicity as the cheap price point means the demand for the product does not change (it is inelastic).
- Quality Control could also mean that products are of a constant high quality and should in tern allow a business to work effectively on producing high quality products for the consumer, who will hopefully repeat purchase. Kaizen and Total Quality Management can allow a business to excel at creating a quality product that is lean and high quality as it forces the product to be a standard that the business expects and what the customer wants.
- Brand Awareness, A customer who does not know a product exist may not buy it, additionally any customer who recognises a product may choose to buy it over a generic product because of it. Advertising and promotion can artificially create the connection between the customer and the brand of trust and safety in a product, that this is the product they should buy.
In Business, production generally has two techniques;
- Labour Intensive Production aims to use a large workforce to complete work by hand, this usually employs a lot of people to create a product. Some products may be seen to have more value if they were manufactured by hand.
- Capital Intensive Production aims to create a product using as little people as possible, the process could be entirely or partially automated and can sometimes be used to assist individuals in manufacture, such as a custom robotic factory worker that moves parts of a product to assembly, or a robot that screws in multiple screws at once. The aim of these tools is to make the job simple or quicker than manual labour, in order to product multiple product in a given time. Production machinery may be very expensive, but aims to be cheaper than labour intensive production in the long run.
Labour Intensive Production
Labour costs are higher than capital intensive production, however they can vary. If the task is simple then automation may not be necessary. Labour Intensive production will generally have lower running cost than capital intensive production, as workers will perform most of the tasks. Firms can benifit from access to low-cost labour as the job will likely be low skilled.
- Businesses can benefit from premium pricing for ‘hand crafted’ goods.
- There is generally better quality if it is not a fast process.
- Labour costs can be lower if businesses hire on temporary contracts. Individuals will not need to operate specialised machinery.
- Some businesses can use a flexible workforce to make sure that locations are staffed efficiently.
- Labour Intensive production allows for improvement easily compared to capital intensive production.
- Observation is easier.
- Lower Break-even output.
Capital Intensive Production
- There is generally a better consistency than manual labour.
- Businesses can loose competitiveness as they are stuck in the same production technique.
- Machinery may become obsolete.
- You can’t make businesses such as a restaurant or hotel capital intensive as customers may feel that their stay was devalued by it.
- May generate resistance from labour workforce when implementing.
- Kanban systems are easier to implement.
- There may be a greater loss if there is a fault.
- Programmed machines do not loose skill and there is no skill shortage for machines.
- Potentially High labour costs if individuals need to maintain complex machines.
- Firms can benefit from access to long term financing.
- Labour is more specialised so individuals are good at their job.
- There is usually longer term benefits.
- Robots do not require pay.
- Costs are mainly fixed.
- There is therefore usually a higher break-even output.
Kanban systems in business allows them to effectively manage their stock internally, essentially for businesses that require large amounts of stock, such as small parts, screws or trolley-based workstations, they will likely use a Kanban system to effectively manage their stock. A typical Kanban asset tag will have the item description, part number and sometimes will include the cost of the unit, should the business want to try to regulate the use of the item.
What is the purpose of Kanban?
- A Kanban system ensures that employees always have access to the tools they need and JIT systems can be implemented easily.
- A Kanban system also allows a business to measure the amount of parts that they do not use when producing a product, and may be able to go to a smaller or higher quantity when ordering.
- The tag system can also work with a three bin system, one on the factory floor, one in the re-stock room, and one at the supplier. This ensures that the bins are always stocked.
- This system can also link in with other elements of lean production.
- Defective products never make it to factory floor as they would not be stocked by the stock control system.
- Some implementations have plates with the items needed laid out so workers can simply pick up the tools they need and assemble to product without having to move or find the item.
- Some implementations also have the production line move along at the pace of the ordered quantity, making staff work harder to keep up with the product. (usually for production lines like planes or cars)
Kanban Asset Tag
Some businesses use the Average cost per unit to judge their effectiveness and efficiency, as Kaizen systems recommend ‘Continuous Improvement’ the average cost per unit provides a metric for them to calculate if they are more or less efficient.
Total production costs in period / Total output in period (units) = Average cost per unit
The rise of E-commerce (electronic commerce) and M-commerce (mobile commerce) has made the re-ordering process of these parts much more accessible for a company.
Lean production methods such as Kaizen and Kanban allow a business to motivate staff to use less waste and treat resources as a finite resource.
Lean Production for Expansion
Most businesses that are doing well consider expanding, when they do they need to use more effective methods of production in order to survive, this means cutting cost on waste and optimising lead times and output. Lean production is about continuously checking that the business processes are as fast as possible.
- Just In Time – Just In Time (JIT) requires a good relationship with suppliers who are going to deliver when you need them, this saves on storage cost. This also means that a business will have better cash flow if they can tie this together with trade credit.
- Total Quality Management – In TQM, Each Item is checked for consistency and to meet standards, although it may be expensive and time consuming, it could mean that the business has less waste.
Businesses may want to consider increasing machinery capacity or staff work overtime during expansion. Walking, waiting time and bad quality are eliminated or minimised in a lean production.
Lean Production Techniques
- Products are made to order, when they are ordered.
- Businesses only order new stock when it is needed.
- Items are only bought when they are needed or in demand.
- Essentially Pull is JIT (Just In Time).
- There is a reduced amount of leftover resources as products are made to order.
- One item is produced at a time, so there is not confusion in manufacture.
- The flow of production becomes highly predictable and focused.
- One product is made at a time, so production could be slow.
- Large objects may only be made one at a time.
- Batch ordering may not be possible, so businesses cannot take advantage of economy of scale.
- Standardise manufactured components.
- Takt is how fast a product is manufactured to meet demand.
- It allows a business to balance work to achieve a continuous flow.
- Continuous Improvement > Kaizen says ‘Continuous Improvement’ through self reflection.
- Products with defects must be fixed before being allowed to go on to the next stage of production.
- Rate of production is improved, as the rate off success is near optimal.
- Products with defects may still have been able to sell. It means waste could be higher than before.
- Products could also be higher quality.
Lead time is the time it takes for a customer to receive a product after ordering it.
Zero based budgets are are when budgets are reviewed without reference to the previous budget. Normally this does not happen, however it is growing in popularity, as it usually results in lower costs.