I received a lot of insight while doing this assignment. The most important value that I received from this assignment is that in today’s economic scenario cost reduction is the goal. If businesses want profit improvement then cost reduction should be an important strategy. It is not a difficult task to reduce the cost if the companies have necessary insight about how to use their cash, workforce as well as other vital resources in order to ensure minimum wastage.
Cost reduction has the following extremely important benefits:
· increased opportunities
· higher profits
· stronger and more stable businesses
· a larger customer base
In order to achieve these goals the business owners, presidents, vice presidents, project managers, plant managers, line managers etc. should be specially made aware of the benefits of cost reduction, the statregies that can be helpful in cost reduction as well as the correct methods of reducing the cost of their respective companies.
The insight that I gained can be applied by all businesses across the globe. If a manager knows the cost reduction techniques then he can become the most valuable staff of the
I learnt from the reading that overproduction and over-stocking of raw materials are severe problems. Right from the World War II days people are obsessed of stocking. This attribute is being connected to our basic human nature that we have inherited from our ancestors. It has been rightly mentioned in the book that the modern industries still follow this age old approach which is no longer practical. According to Goldratt and Fox “This requires what I call a revolution in consciousness, a change of attitude and viewpoint by business people. In a period of slow growth, holding a large inventory causes the waste of overproduction. It also leads to an inventory of defectives, which is a serious business loss. We must understand this situation in-depth before we can achieve a revolution in consciousness.” (2004, page 15)
Most businesses are in a habit of buying office supplies as well as the raw materials for manufacturing in bulk. But the serious concern is that the businesses loose a major part of these bulk products because of loss or expiration. They might have received bulk discounts on buying these bulk products from the vendor but due to loss and expiration the discount does not add to the profit, rather gets swayed away by the loss.
The following measures can help in understanding the situation in-depth and getting a true picture of the current status of the company:
· review of inventory databases
· review of financial records
· review of purchase orders
· monitoring of print and copy logs
· sorting out the inventory / raw materials / paper / cartridges according to the expiry date and using them accordingly
· taking appropriate measures so that the purchases are in sync with usage
· reallocation and complete utilization of space that is taking up valuable space in the warehouse.
Even after the problem areas are identified and appropriate measures are taken; the management cannot achieve total success in cost reduction and waste management instantly. It will take time for employees to reschedule their work habits and patterns. Techniques like incentives for those who contribute in cost reduction and waste elimination as well as employing a few executives to overlook whether the cost reduction initiatives of the management is being supported by the workforce or not can lead to good results. This would ultimately ensure that the major goal of the organizations in these hard times has been achieved successfully. If businesses follow all the above mentioned steps then they can successfully apply the theory to practice.
Through the reading I learnt that in order to absolutely eliminate waste, the businesses should control overproduction and utilize the efficiency of the staff of each department to the maximum. Waste does not imply wastage of just inventory, raw material or over produced products but also the time by the workforce. This means that one aspect of goal attainment is to derive maximum input from the staff. If necessary the staff numbers can also be reduced in number in order to maximize profit. However, simultaneously it has been advised by the authors that hiring employees during profitable times and dumping them during recession are a bad practice. The management should not only be careful about the staffing decisions but also build goodwill amongst the past, present and future employees. The book tries to bring forward the point that the goal is not only cost reduction and wastage elimination but also to know what is correct and to understand and use appropriate ways of implementing a strategy.
Theory of Constraints is developed by E. Goldratt. The book, The Goal is co-authored by the developer of the theory of constraints, E. Goldratt. In fact the book was amongst the first to outline the basics of the theory of constraints and hence it can be said that the book, The Goal and TOC is related to each other in the sense that we understand the book through TOC. Since they have common developers the book can be said to be an extension of the theory. The Goal mainly deals with cost reduction and wastage elimination. TOC enhances the propagated ideas in the following ways:
· by guiding the business managers to identify the constraints that they are facing in their businesses
· brainstorming of how to fight the challenge of cost reduction and at the same time maximize the profits
· channelize all the management strategies and actions of the workforce in such a way that the goal of cost reduction is achieved
· Once the goal is achieved the theory of constraints states that the managements should determine whether it should stop its strategies for the time being or take on any further steps
· If in case the goal of cost reduction is not achieved due to failure in the previous steps then it is mandatory for the management to start from the beginning.
Hence it can be said that both The Goal and TOC are interrelated to each other there. The Goal is not complete without TOC and vice versa.
Goldratt E.M. and J.Cox. The Goal. 3rd ed. UK: Gower Publishing Ltd., 2004