In the past, companies took a cost-plus approach to pricing, charging high prices when a product was first released, then lowering prices when production was scaled up. Lean competitors make that approach impossible, however, as they are quick to introduce competitive "me too" products to market. To gain and hold market leadership today, a company must design the cost out of its products from the outset. Target costing is a cost-management technique that lets a company do just that: The company determines how much customers are willing to pay for a product and then designs the product within cost limits that will permit it to sell profitably at the predetermined price.
The management at Trail Manufacturing was so excited about installing new flexible machining equipment in their factory that they neglected to guage the impact it would have on the workers who actually ran the machines. Mike Trail, the company's owner and president, is torn between his chief engineer who encourages radical changes, and his machinists who believe the company is making a huge mistake. Four experts in operations management comment on the choices Trail must consider.
In many ways Frost is an archetypal, small, dying manufacturing firm. With profits gone in a no-growth business and unable to diversify, Charles Frost bets the company on computer numerically controlled (CNC) equipment to replace the existing 1940s era screw machines. The case is designed to allow discussion of: 1) why they can't diversify? (they have no unique skills and are unable as an organization to change from the existing processes which focus on the current product), 2) whether CNC can solve the problem and whether they can afford it, and 3) how each functional area will have to change if Frost is to evolve into a "capability house."
Explores the issue of measuring and improving service quality and productivity by examining the radically different approaches of Northern Telecom and United Parcel Service.
An essential step in improving productivity is measuring it appropriately. But managers have trouble working with the experts who design and implement measurement systems. When they evaluate and use productivity indexes, managers should keep in mind certain guidelines: The most sophisticated measurement system is not always the best; there is more to manufacturing efficiency than how hard employees work; measurement systems should consider all relevant factors; when comparing the efficiency of plants or companies, comparisons must be fair; managers should be aware of the ambiguities and complexities that afflict all productivity data and, above all, when using systems, put relevance before technical precision or elegance.