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"Infinite Cost Reductions"?

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asahi.com:Rises in efficiency reduce factory personnel – ENGLISH:

From the article:

“Toyota Motor Corp., one of the nation's most profitable and efficient manufacturers, is leading the charge to cut costs.

In a speech to company managers in July, President Katsuaki Watanabe said that ‘the possibilities of cost reductions are infinite.'”

I hate to nit pick with Toyota, maybe there was a translation issue with this news source. But the comment reminds me of something that, I think, Dr. Eli Goldratt (of Theory of Constraints and “The Goal” fame) said, that you can only cut costs to zero, but you can increase revenue infinitely.

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I think the point was that if you improve on-time delivery, response time, and (I assume) quality, that you could increase sales far more than you could ever cut your costs. Your costs have to hit an absolute zero, which is hardly infinite.

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If Toyota's president meant “We aren't done cutting costs and still have a long way to go”, then right on. I probably shouldn't take him so literally.

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Mark Graban is an internationally-recognized consultant, author, and speaker who has worked in healthcare, manufacturing, and startups. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent book is an anthology titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

1 Comment
  1. […] discussion reminds me of Eli Goldratt (author of The Goal), who said something to the effect of “You can only cut costs to zero, […]

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