Suppose you work in a factory which is part of a larger group of companies.
What happens when the operations boss comes to visit you from head office?
He or she will congratulate you on your good work, meet and greet your staff…smile. However, you will always be left with an instruction to ‘keep it up’. This usually means ‘make your products cheaper next year…and the next’.
If you have been that good up to now, you know it is going to get harder and harder to reduce cost. You will feel that you are being driven against a steep mountain slope and being whipped into going up it.
Here’s what the operations boss knows. His marketing people are telling him that the gross margin of your products is being eroded and that to maintain profitability, unit manufacturing cost must keep coming down.
If there are alternative business approaches that you could take in the market, then you don’t have enough information to say and anyway it’s outside your authority.
If you are truly reaching the limit of cost reductions set by the inherent product design, then it is difficult to say so without the operations boss feeling that you lack determination. It would put your own future in jeopardy. .
The upshot is that you continue to work harder and harder to achieve less and less, until the time comes when the last cost reduction that makes any sense is to move the improvement people out and save their salaries. Your accountants will very quickly be able to tell you how much you will save in this scenario.
In the meantime, a number of increasingly (they have been getting better and better at improving) talented improvement people get more and more frustrated because they know they are achieving little in measurable results. Plus you will have to pay them.
To avoid this lose-lose situation, you need to know when to stop improving.
At that moment, you will also have to clearly decide: do we stay where we are, do we undertake a significant product redesign or do we explore different business improvement ideas that exploit the ability of manufacturing to be more flexible or responsive for the same cost?