53-Avoiding Wastage of Resources

Honda has the most flexible auto plants in the U.S. It does so with simple modifications to the robots and assembly lines used to assemble its products. Of course, this high degree of flexibility is the result of significant investment over many years. Part of this investment included the company’s efforts to ensure that vehicles are designed to be assembled in the same way, even if the parts of the vehicle differ. This flexibility has become a key strategy advantage for the company as the auto market gyrates due to volatile gas prices. Honda has the capability of adjusting its production faster than any of its competitors.

Creating factory flexibility is one way that a company reduces the units of Input it requires to produce a unit of Output. In Honda’s case, the units of Input it was able to reduce with flexibility included employees and capital required to produce an automobile.

This flexible factory has enabled Honda to reduce downtime for employees and the plant assets. Downtime merely wastes the resources available for production. The auto industry has been reducing costs aggressively for many years. Honda is one of the companies who have done this well. (See the Symptom and Implication, “The industry is reducing costs aggressively” on StrategyStreet.com.)

Here are some examples of ways other companies have reduced their unplanned downtime:

• Allow work in process to follow multiple paths to completion to avoid delays at any waypoint

• Break bundled supplies into their component parts where components of a bundle are used at different rates

• Enable an employee, or a component, to serve multiple functions

• Ensure that all required components are available at each step in the process

• Duplicate critical components to avoid any potential shutdown of the process due to the failure of a single component

• Have ready answers for issues that can slow or stop a process

• Offer a service package to customers to avoid the failure of the product at the customer location. This service may also bring a price premium.

• Build installation instructions into a component

There are many hundreds of ideas to help a company reduce its unit costs and improve its overall productivity, measured as units of Input divided by units of Output, on StrategyStreet.com (see the Improve/Costs section of StrategyStreet). But any cost reduction program should focus on the right costs. (See the Perspective, “Cutting the Right Cost” on StrategyStreet.com.)

Posted 10/13/08

Update:

Honda has continued its stellar performance in asset management.  Ford and GM are also making good use of their assets. The star performer in the US is Stellantis.

Total assets divided by total sales for selected automobile companies in early 2022:

Honda 1.66

Toyota 2.29

Ford 1.89

GM 1.93

Stellantis 1.15

Mercedes 1.94

Hyundai 1.99

Tata 1.35

HERE is a short summary of the four types of cost reduction along with some optional examples.  You can use our many cost reduction concepts and examples to brainstorm improvements for your own company.

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