Page 303 - (DK) The Business Book

DELIVERING THE GOODS 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

n business, waste is anything products that fail internal quality Reinvesting profits
that adds to a company’s costs audits and are not good enough to Reduced unit costs can help a
I that does not create a higher be sold. If waste of this type can be company to enlarge its profit
output level, or lead to improved reduced it should be possible to margins. If such savings are not
customer satisfaction. Any money raise output without having to hire passed on to the consumer, they
generated from a reduction in extra workers, spend more capital, could be used to increase the profit
waste can help a business grow by or buy in additional raw materials earned from the company’s current
improving its competitiveness. and components. sales volume. The additional profits
Joseph Juran (1904–2008) was According to Juran, lower costs made from reducing wastage could
born in Romania and moved to can help a company grow in two be reinvested into the business—
the US when he was a child. He ways. First, if average costs can be the goal being to increase sales and
became an expert in quality in decreased, the business could to achieve growth. An efficient way
business after working at Western choose to pass on the reduction by to make use of the cash saved by
Electric in the 1920s and being lowering prices to consumers. For reducing waste might be to fund
trained in statistical sampling and example, if an initiative to reduce a new advertising campaign.
quality control. Juran identified waste leads to a 10 percent fall in Alternatively, companies might
waste as a factor that undermined average costs, the management reinvest a significant proportion
profit. He urged businesses to could opt to cut its retail prices by of their profits into scientific
constantly look out for opportunities the same magnitude, and still earn research and new product
to reduce waste. For Juran, the best the same profit margin. Cutting development. Theories about the
way to do this was to improve prices can help a business grow: life cycle of products, technological
product quality and the reliability undercutting the competition on advances, and changing consumer
of the production process. price is likely to attract market tastes suggest that most products
share. Furthermore, even in have finite selling lives in the
Reducing waste markets where there is little market. If these investments pay
Waste in business ranges from competition, price cuts will make a off, the next generation of products
investing in expensive machinery product more affordable. The lower will incorporate the latest must-
that does not meet the required price will widen the brand’s appeal, have features and benefits that will
output level because it breaks down and potentially create growth by appeal to consumers and translate
regularly, to producing finished enlarging the target market. into high sales. ■

Volkswagen used to produce each car by
investing in new cutting
In 2012, Volkswagen announced machinery and by changing the
its intention to become the world’s dimensions of the steel sheets to
most environmentally friendly car reduce off-cut waste. In the paint
manufacturer by 2018. To achieve shop, the amount of paint used
this goal, the German company to produce a vehicle was halved
set out to reduce waste during the by installing state-of-the-art
production process. painting robots.
When cars are produced, sheet These savings meant that
steel is cut out to form parts of Volkswagen could reduce their
the chassis. If this process if not prices. For example, the price of
managed effectively, expensive a Golf Cabriolet was reduced by
Paint robots at this Volkswagen steel can end up being wasted approximately $10,600 in June
factory help reduce employee costs, as off-cuts. The management at 2013. Reductions like this
and can be programed to use the Volkswagen achieved a 15 percent contributed to a 6 percent rise in
minimum amount of paint required. reduction in the amount of steel global sales by May 2013.