Survival Tactics: Chapter 26
Allocating resources:.....Continued from the last post....
The small converting plant in the last post shows that it is generating a $100,000 net profit per year. We examined what would happen if an additional sales man was hired. As the owner of this plant certain decisions have to be made. Should things continue the way they are? After all, the company is showing a decent profit. This is a personal decision and the owner is in a best position to make this call.
However, if the management decides to expand the operation, careful attention has to be paid to the fundamental operating procedures. Doubling the size of the work force has to be carefully analysed. What's the point of doubling your size if your net profit drops or remains the same? Each new member added to your staff has to be justified. If you fall in the "public sector" mind set and start hiring just to look bigger, then you are headed for a major disappointment.
Increasing profits:
Let's set a simple goal. Our mission is to double the net profit for this converting plant. How do we do that?
1) We can increase our price for finished goods by 10%. On a million dollar sales figure this comes to an extra $100,000. Mission accomplished. This is easier said than done. If the going rate for sheeting is $200 dollars a ton, by raising your price to 220 dollars a ton (10% increase in price) you might end up losing all your customers. This only works for the State Government and the Public sector. They keep raising prices and there is nothing the public can do about it. They have no accountability or fear of losing their jobs. They live in a World that is immune to any economic common sense. In addition they have no competition. For them there is no day of reckoning. They produce nothing. They just make rules for the rest of the private sector.
As we can see raising prices to double your bottom line is not going to work. So we now have to come up with plan "B".
2) Reduce wages:
This is another brilliant innovation....this cut-in-wages...to save costs. If Mr. Henry Ford had followed this concept, I hate to imagine where we would be today. United airlines is in big trouble. The union made billions of dollars in wage concessions...yet United is losing millions of dollars a day. Note, the upper management got bonuses!! The sacrifices were made by your daily lowely workers.
In the early eighties I bought a computer powered by a 8088 microprocessor. The clock speed was 4KHZ. Hard drive was 10Megs. I paid over $6,000 dollars for this clunker in 1983 dollars. Today, Iam using a computer that runs millions of times faster than the 8088 machine and with the printer and all I paid $500 for this. The computer industry sets the standard for the rest of the World.
Cutting wages is not an option....not yet anyway. But the way our politicans are going I wouldn't be surprised if wages went down to 65 cents an hour.
3) Make your workers more productive:
Well folks, China had forced labor. Russia killed millions in labor camps. Overtime laws are being changed. In effect the changes are being introduced so that the employers doesn't have to pay overtime. Let the masses slave. We have more 'fat cats" to feed. Tax cuts are enacted, yet fees are raised. End result..we end up with less than before these changes were enacted. And the deficits keep sky rocketing...pension funds are depleted, social security teeters on the edge of bankruptcy....
American workers have less free time than any other western nation. Both the husband and wife work...yet this is barely enough to eke out a decent living.
To make workers more productive you have to provide them with the right tools.
