A Vision of The Future - The Problem - Seeking to Control Costs to Improve Productivity
The flaw with seeking to control costs to improve productivity is that they tend to 'cut more than just fat.' Controlling costs to improve productivity frequently also removes protective capacity and prevents operations from taking advantage of day-to-day throughput enhancing opportunities.
More and more decisions require requires senior manager authorisation of the spend, and that takes too long.
- It is common for smaller firms with a lower cost base to have a commercial advantage that is deployed to win sales. The lower cost base allows the firm to offer competitive rates while maintaining profitable margins. This leads many business owners and managers to believe that, “The only way to enhance productivity and grow their business is by investing in having a lower cost-base than your competitors.” This creates a destructive 'race to the bottom' within the industry as competitors go to war on price.
- Larger firms in the industry gain advantages from investments in automations that smaller firms cannot afford. These larger firms have figured out how to be profitable with a high cost base and low margins, whilst offering a competitive rate at the same time.
