By Raúl Gorrín. Now it is important for your final product, the goods that you produce, your ‘output of work’ to be of high quality. A poor quality product may make more money and be more efficient in the short run, but in the end you have to answer to your customers and if they are happy, then you will get repeat business. If the product is substandard, your company may find itself doing recalls, which can be expensive and hurt the company’s reputation. So……..
Rule 1: put out a high quality product.
The product must be produced within a defined time. The more efficient you are with time management of producing a product the more productive the product will be. So…
Rule 2: Watch the time it takes to produce a product.
So to see if we can be profitable on this product, we need to see if we can put out a high quality product within a given determined period of time.
Now rule one and two determine our output of work.
The input of resources that go into producing this product are plant and equipment cost, labor cost, cost of goodwill, cost of supplies and materials, government regulations, the list goes on and on.
So how do we use this ratio of output / input ?
If we are considering whether to upgrade our facility and some equipment, we use this ratio to make that determination.
If the cost to upgrade our technology will cost us one million dollars per month. But with the new technology we will put outfour extra million of dollars in goods because it takes less time to now produce this product. The new technology will put out a better quality product. This better quality product will be among the best , if not the best quality of any of your competition.
Output (4 million) / Input (1 million).
That’s a 4:1ratio in favor of increases the technology.
We did not take into account the increase in goodwill from the superior product, which will result in more sales and more referral sales.
Of course there will be times where the ratio for more investment of capitol is not in your favor.
So whether you are considering investing in employee training, research and development or if you should open your sales to international markets, you need to consider the productivity ratio and use your best predictions to make an accurate determination.
Productivity if the numbers add up and the ratios are in your favor will increase and will become a process to create wealth. ( By Raúl Gorrín)
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