One Swiss Franc is currently worth more than one Dollar. The Euro has also significantly weakened vs. the Franc. The Swiss economy is dependent on exports that must now be under threat due to the high price of Swiss goods. If Swiss industry does not find a good solution the strong economy there will suffer greatly. How quickly can Swiss industry react successfully?
2. Stop Wasting the Business’ Weakest Link
Where the limiting factor of a business lies is almost always NOT clear to the people running the business. In fact most businesses waste their limiting factor’s capacity through the policies by which the business operates. Here we will assume the limiting factor is in operations – in fact it is one of the resources within the factory.
If the policies used by operations cause the limiting factor to lose a part of its capacity, then the capability of the business as a whole is damaged, but only if the business could sell more of its products. There is a “policy” or practice in most factories that causes every part of the production system – every resource, every machine to optimize their performance. This will cause behaviour on the majority of the production system’s part to optimize their cost or efficiency or maybe some other parameter. To optimize resources usually have to operate in a way that is not exactly optimal for all other resources. This does not really matter, except at the weakest link. If the limiting factor loses capacity or capability the company cannot produce as much as it could.
Operations at such a firm has the impression that they cannot produce more than what any will call ‘demonstrated capacity’. However if the rest of the organisation, including other departments like finance, sales and marketing etc. behave in a way that helps the limiting factor achieve its maximum, then, very often, 20 – 50% more can often be produced. Not only that, the limiting factor is often also the unit that causes delays to deliveries – so, deliver reliability will most likely also improve. If reliability and speed improve (point 1), then customers become more loyal – the business will lose clients more and more slowly. Even if gains to not speed up, the company should gain market share.
This sounds simple and conceptually it is. But, from a change management perspective it can be very difficult. All units must know what the constraining factor is and how they should behave. They must also not be measured by their local effectiveness. They need to be measured by the positive impact they have on the limiting factor.
Management must watch the situation very carefully. The limiting factor can easily become a unit with more than enough capacity and the constraint shifts to another location.
If the company is able to produce 20% more (on 100m€) then potentially sales could increase by that amount – 20m€. Usually none or very little added operating expense is needed for this jump. Using 60% variable margin again a 20m€ jump in sales would, under these conditions, deliver 12m€ to the bottom line.
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