Satisfy the Customer in the Long Run for Sales and Profits

In this month’s question on the Lead Edge Jean-Baptiste Bouthillon, PDG de PO Constructio asks what to do about falling sales and adjusting takt time.

Here is my response over on the Lean Edge:

I think we are falling into the trap of discussing “production tactics” as a root cause solution without really understanding the problem. Apologies in advance but I would have to back track first and clarify the situation in greater detail before I could answer the question. I will provide some context for what I mean and some thoughts on the short term and long term in terms of actions required.

For starters I’d like to point out the Toyota Production System aka “Lean” sets out to satisfy the customer and provide maximum profits for the company in the long run. This does not mean that we can push product onto the customer. We have to sell units that provide value and satisfaction to the customer beyond that of the competition. This may mean having superior quality attributes or features, advantageous cost positions, shorter lead-times or a myriad of other possible factors.

The question submitted asks if there is a Lean way to deal with falling sales. Without sounding too blunt I believe there is and it has little or nothing to do with adjusting takt time in the long run. The right answer is to figure out the root cause(s) for the decline in sales and start the wheels in motion to correct those problems…I am not saying this is easy but why are sales falling in reality? It is a problem with the product design? Is a problem with the cost or service provided? Is it due to perceived quality or a new competitor in the market? Responses to these factors are complex and very important and will greatly affect success in the long run.

In the short run of course text book TPS calls for adjusting takt time to a slower rate if demand falls. This is the short term necessary countermeasure to compensate for the decline or else you will be guilty of over-production and various other wastes. The lower takt time will mean that fewer resources are required for production including staffing, materials, and other inputs to the production equation. If this adjustment is not made then profits will of course suffer.

The trick of course is to reduce costs in the short run by elimination of true “waste” and not “muscle” on the corporate body. I was employed by Toyota in Japan during a downturn once due to the rise of the yen (Endaka) versus the U.S. dollar in the latter 1980’s and early 1990’s. No one lost their job fortunately but a variety of things were done. Some were symbolic some were more substantial. All overtime was eliminated in all departments unless approved by executive staff. All lights were turned off at lunch time. Pencils and papers were rationed in the office (nope not joking). Additional focus was applied in Kaizen in reducing cost in every conceivable way. Non-essential projects, training, and hiring were delayed, etc. Some work we outsourced to contractors was brought back inside. Every stone was overturned for ways to improve profits and cut costs in the short run.
In the end profits were still hurt as sales fell but we did better than we would have done without these and a host of other measures. In the long run though I don’t think any company can survive by “cost reduction” production techniques alone. Toyota also has a healthy emphasis on new and innovative products and quality as well in order to satisfy the customer and grow the business in the long run.