In an effort to achieve corporate cost reduction, production companies often exercise lean manufacturing processes. However, some don't see as big of a return on investment as they would like.
Don't ignore sales
When receiving a request for proposal, enterprises subscribing to lean production processes are often prone to over-discounting. The idea behind this tactic is that they'll be able to sell more finished goods than their competitors, but this can also result in decreased revenue. Some enterprises may even operate at a loss.
Barrett Thompson, general manager of pricing excellence solutions at Zilliant and contributor to IndustryWeek, noted that a lean approach should be taken when assessing the financial value of finished goods. Although this strategy sounds as if manufacturers should cut costs as much as possible, it has more to do with the mindset of pricing.
Predicting market change and price elasticity
The contributor noted that it all starts out with the RFP process. Say a producer creates 40 million light bulbs a year. Thompson noted that the maker ultimately "manufactures" a price for each unit that is sold. Assigning value depends on:
- The manner in which the bulbs are produced (in this case, with a lean perspective)
- The cost of the materials used to develop them
Ultimately, the goal of the light bulb manufacturer is to make the most money it can off its end products while still remaining competitive. Therefore, Thompson recommended that it regard the waste created by:
- Defective goods
- Inefficient production methods
- Lengthy quoting processes
The longer it takes to develop a pricing model, the more expensive items are going to be listed. However, this cost will not be factored into revenue but into overhead, which in turn contradicts the purpose of executing a lean manufacturing process.
Marketing analysis software that can accurately predict economic fluctuations should be exercised to the fullest extent. With the help of such technology, organizations will better be able to deduce the cost of materials produced in a lean fashion.
It's worth it
Through a mixture of sustainable practices and slim production models, label manufacturing company Avery Dennison's Quakertown, Pennsylvania, facility has increased its creation volume by 43 percent and reduced waste to landfills by 66 percent, LVB reported.
With the appropriate pricing approach, a lean manufacturing model can produce numerous benefits that go beyond profitability. Using state-of-the-art equipment and exercising eco-friendly policies, organizations are poised to gain an advantage in the RFP process.