Volume 15 Number 6 - June 6, 2017

Maximizing Profits is a Strategic Mistake

When I worked for TRW in the 1980's, the company required everyone with purchasing responsibilities to take the Chester Karrass negotiating course. At that time it was 100% focused on the assumption of a zero sum game, where whatever the other "side" got came directly from you. Win-lose. Since then companies have come to understand that successful suppliers are required by successful customers, and vice versa. Win-win became the order of the day.

Unfortunately, that understanding itself often ebbs and flows with near-term earnings, and for too many companies it has yet to extend beyond the commercial supply chain.

Every business has five constituencies: customers, suppliers, employees, investors, and the community at large. The concept of community extends into the future. Every responsible company considers all five when making major decisions. Too many leaders focus first on investors, and then on customers, and then perhaps on suppliers. If there's money "left over" the employees may get a raise or a bonus. The community? Well, if there's still money left over, maybe we'll donate to something or fix that fence.

Managing costs is integral to long term success. Managing costs is not the same as stretching payments to vendors, taking discounts not earned, or laying off highly skilled employees when times are tough. Poor processes, guestimate specifications, slow time to market and unverified products, ineffective onboarding and training, accepting bad orders or customers, staying with suppliers uninterested in improving your success, firing suppliers without investing in their success, ignoring local schools — these, and more, are all significant contributors to poor financial performance.

Consider what it takes to be a company that the best want to work for, suppliers energetically support, customers seek out, long term investors chase, and that the community is thrilled to have. You can't get there without being profitable. But being profitable doesn't put you there either. Profits are important. They can and should be derived from well considered decisions, not short term ones to maximize today's numbers.

As you consider significant decisions, I encourage you to ask yourself: 'what is the impact likely to be on all five of our constituencies?" If all five benefit, now and in the future, it's an easy decision to make. If not, consider both the short and long term impact on each of them. Then make the right decision, which might well not be the one that maximizes profits.

To focus solely on maximizing profits is a strategic mistake that few of you can afford to make.

Transforming Operations. Transforming Business.®

Let's discuss how Manufacturing Greatness can help you become a better manufacturing operations leader. Additionally, my latest book, Start Smart, Finish Strong: Forging Your Path to Operational Excellence and Long-Term Success in the Manufacturing World is available at Amazon, Kindle, and iBooks.

Should You Work With A Consultant?

The Starting Pistol

Arthur Miller:
"Don't be seduced into thinking that that which does not make a profit is without value.”

The Tape

Rebecca Morgan:
"When all constituencies profit from the decisions of your business, your business can profit forever."

June 19–21, 2017: Barcelona, Spain: The 19th annual EMEA Supply Chain and Logistics conference is limited to 600 attendees. The global economy impacts all manufacturers, as we impact it. Take advantage of this great opportunity to talk with your peers. Speakers are from ZTE, Ikea, and other well known global companies.

June 29, 2017: Elkhart and Mishawaka, IN: Much of the world is at war. Come see how AM General and its suppler Dynamic Metals are answering the call. Tour both facilities to learn how they optimize one-piece-flow and perfect quality in meeting the needs for armored Humvee production to protect the troops.

July 27, 2017: Akron, OH: If reducing time to market is so important, why do so few manufacturers slice R&D and product development times using lean principles? At Goodyear, lean thinking has enhanced the flow of creative ideas from inception to market launch, has created the capacity needed, and has significantly increased the speed of the process. It also has improved quality and enabled Goodyear to release 1,500 new products or SKU’s globally every year on time and on target. The process is duplicated in all 3 of their international innovation centers. Learn about Lean Driven Innovation at its finest.

October 9–13, 2017: Boston, MA: AME's annual conference is in Boston this year. Over 2,000 of like-minded operations leaders and followers will be there. Check out the workshops, tours, keynotes, and practitioner presentations.

Check out the Events page on our website for more information.

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