Companies Use Lean to Offset Cost Increases
IndustryWeek : Under Pressure:
This ties directly to the Toyota article from the other day and the concept of Profit = Price – Cost. The Industry Week cover story focuses on companies who work hard to mitigate cost increases without relying solely on price increases to the customer. This blurb is about an office supply manufacturer in New York:
“With Esselte's previous lean work, combined with Brooks' plan, he says pricing hasn't been an issue so far, noting that he hopes to be able to mitigate more of the material costs with increased efficiencies. When it comes to pricing, the company is looking to end-users to determine what the market will bear. ‘A customer is going to pay a certain price for a product, and if your price is too high, they won't buy it and, sometimes, if your price is too low, they won't buy it. We're trying to understand what the end market is and make sure that our cost structure allows us to make some profit based on what the market is willing to pay for our products.'”
A related story about increased labor costs is here. Whether it's material or labor costs — use lean to find ways to get more efficient to offset those costs. Your hourly labor rate has gone up? Reduce waste from your process so you can build more product with the same number of people. Material costs have gone up? Redesign your product in a clever way so less of that material is required.
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Esselte does not raise price’s because they get rid of long term employee’s and hire Manpower workers instead. The long term worker’s that are left had their pay cut drastic. A lot of Manpower worker’s are making more than they are! Management’s attitude is they couldn’t care less about all the year’s you have spent working for the company.