I saw this article last week in the USA Today while traveling, with the online headline “Products nipped, tucked to save.” That headline makes me think first of old fashioned cost cutting – which in these economic times often means trying to fool the customer by giving them LESS product for the same amount of money. That is not “value.” It's the opposite.
But in the Lean terminology, we always say “value is defined by the customer, going back to Womack and Jones' Lean Thinking. Some companies are being smart in how they are modifying products, based on what the customer is really willing to pay for.
Unfortunately, many companies are giving you less for the same price – it's a sneaky way of charging more when companies don't really think they can get away with that. Lean and TPS thinkers realize that prices are set by the market – it's simple economics. Just because the cost of milk goes up doesn't mean an ice cream maker can jack up the price on a half gallon of Neapolitan. But if the “half gallon” is no longer 64 ounces, you might not notice that you're getting “less value for money” as the Brits would say. Makers of all sorts of food products – orange juice, Saltine crackers, Ivory Soap, Scott toilet paper, Hebrew brand hot dogs, etc. are pulling the same stunt.
Now Saltines is trying to offer “value” in terms of smaller packs within the box (shorter sleeves of crackers) so you get fresher crackers – fewer crackers, more internal packaging. Maybe that means value.
Thankfully, the USA Today examples are examples of customer focus and creativity, not cheating. They have found ways to reduce cost without hurting quality. Case in point, the maker of Wrangler jeans and other brands… no, they didn't save money by ditching Brett Favre as a spokesman (I think):
VF is switching to regular buttons on the flies of some jeans. Executives believed slightly bigger buttons “made a statement” and increased convenience, says Vice President Cindy Knoebel.
“We actually found that it didn't make any difference to consumers.” The move saves about 5 cents on each pair and millions overall for the company, which is paying more for denim due to soaring cotton prices.
If the larger button doesn't make any difference, it's not value.
Again from the article:
General Mills used to ship rice-based flour for Rice Chex from farms and mills in Texas to its Cincinnati plant. But with agricultural and diesel prices rising, it switched to a different rice from Arkansas that's less expensive and closer to Ohio. Costs fell about 4%, says Senior Vice President John Church. “You need to save 2, 3% in a lot of places.”
That's really just a smart supply chain and logistics move.
Last example from the article, I love this one:
Quality Float Works recycles oil that greases its factory machines to halve oil costs. The Schaumburg, Ill., maker of steel water-level sensors for tanks saw its oil costs nearly double from a year ago. “We can't” raise prices, says President Sandra Westlund-Deenihan. “There's a lot of people still out of work.”
Now that's a company that gets it. They realize they can't just increase prices willy-nilly. They have to be creative and find ways to reduce costs without harming the customer or harming quality (which hurts the customer and ultimately the company, too).
Now if you're a healthcare reader – what are some ways we can truly reduce waste from healthcare services? What are the things that we do that patients don't value? Can we find ways to reduce costs without doing away with things that patients like or value? Do you see more cost cutting or creativity in your workplace?
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