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A
steel foundry in this study manufactured wheels for trains. Prior
to 1971 the foundry had two main
products which accounted for 99% of their production.
When
expansion left the firm with excess capacity, they engineered
and sold additional products to fill the excess capacity.
This went on until 1984 when quality and profitability had
declined so much that the firm was in danger.
The
chart below shows casting yield, an indicator of quality, during
this period.
The
company's accounting system had not reflected the true cost of
the new products and they were under-priced. The
company actually lost money on most of this new production.
They
decided to re-focus their foundry. The approach was
to drastically increase prices on the new products and reduce
prices on the original standard products. This insured a profit
on the new products and increased volume on the original
products. |
As
a result the proportion of production devoted to the original
products grew.
The
chart above tells the story.
The
purple line represents the portion of total production
represented by the original two products. Between 1964 and 1971
this was essentially constant at 98%. As
products proliferated, the proportion represented by the
original two lines declined.
The
black line represents labor productivity in man-hours per ton of
good casting. From 1964 until 1972,
shortly after the new products started coming on-stream,
man-hr/ton declined as productivity increased.
With
increased variety, man-hours/ton increased starting
in 1973 until 1981. This trend did not reverse until 1981.
Adapted
from: Stalk, George & Hout, Thomas M., Competing
Against Time, The Free Press, New York, 1990.
Other Studies
Up
Reduced Overhead In Focused Factories
Multi-Division Companies
Steel Foundry Focus
Basic Metals
Workcell Level Focus
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