More on the Toyota Cost/Profit Model

Evolving Excellence: Its About Cost, Stupid!

Great post here by Bill Waddell about the Toyota “Profit/Cost” model of
Profit = Price – Cost. He elaborates on it as “Profit = (Price x Volume) – Cost and points out origins tracing back to Andrew Carnegie in the 1800's.

Most companies, even today, operate under the model of thinking Price = Cost + Desired Profit. Prices are not set by companies, for the most part, they are set by the market.

The only thing you have under control is costs. But, most American companies “cut costs” by closing plants and laying off people. As Bill points out, that also cuts volume, which could very well cut profit.

Here are links to earlier posts of mine on this topic:

• Boeing example
• Gas station example
• Toyota example
• “More whining” example

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Mark Graban

Mark Graban is an internationally-recognized consultant, author, and professional speaker who has worked in healthcare, manufacturing, and startups. His latest book is Measures of Success: React Less, Lead Better, Improve More. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. He also published the anthology Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also a Senior Advisor to the technology company KaiNexus.

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