It seems as though a potato chip company called Route 11 went from nothing to a decent little business largely by offering a variety of different types of chips (crisps for our friends who worry about God saving the Queen). And it would also seem that lot sizes and delivery frequency have an impact on their ability to make money by offering a lot of different varieties. So they reduced the number of types of chips they sell. And so we have an economist turned professor turned marketing expert sagely observing, “Determining the best product assortment often involves balancing the financial gains of operating efficiency with the long-term value of the brand. Overly broad assortments can lead to direct and indirect costs that hurt overall profitability. For some brands, overly narrow assortments can undermine their value.”
The professor is right about one thing – skinnying the product line undermines value. He is dead wrong – or at least has based his thinking on an assumption that is dead wrong – on the other half of his equation. He assumes that the costs of small lot sizes and more frequent deliveries are static – somehow chiseled on the flip side of the tablets Moses brought down from the Mount -the essence of economy of scale thinking.
“In Route 11’s case, packaging costs were lower for high-volume flavors relative to low-volume flavors because they could negotiate quantity discounts from the company that printed graphics on the bags. There were also less-quantifiable costs associated with so many flavors, but these costs certainly affected the bottom line. Producing fewer flavors would decrease the number of flavor-related changeovers the production line had to make. Each time the production process was stopped to change to another flavor, equipment had to be washed down thoroughly. Also, retailers that carried some of the slower-selling flavors had to allocate shelf space to them, which sometimes left too little space for the big sellers.”
While all of that accounting logic may well be true enough, reduce the changeover time and devise a JIT delivery scheme and – poof! – bottom line impact goes up in smoke. On the other hand, accept the professor’s logic – follow it to its logical conclusion and eventually end up with one type of potato chip that can be mass produced in staggering quantities and delivered in bulk … and go head to head with every other mass producing one-chip-fits-all potato chip maker and ultimately fail. Unless, of course, you can ‘innovate’ and conjure up an entirely new type of potato chip that can be produced in staggering volumes that is better than the other guys’ … and then hope they don’t ‘innovate’ something that puts you back at square one.
The real root of the problem is that every market consists of a whole bunch of niches of one. No two people share a common opinion of the perfect potato chip – or the perfect anything else. The bulk items are perfect for no one – they are simply close enough for enough people to buy them, but virtually everyone is open to switching potato chips if one comes along that is closer to their view of perfection.
Lean, with its small lot sizes and frequent deliveries, is the key to economically providing a broader range of products, leading to greater customer appeal, leading to more sales, leading to more profits. Economy of scale, mass production thinking is the path that inevitably leads to mediocrity, at best. It forces sales and marketing to push one-size-fits-all solutions onto a customer base where, in fact, one-size fits-no one. Price reductions (which means cost reductions which means China), promotions and coupons, clever advertising and the rest are the tools required to force fit hopefully ‘close enough’ products into markets comprised of niches of one.
In most companies, sales and marketing are completely detached from lean thinking, and lean tools are deployed in a fruitless attempt to improve costs in a mass market, economy of scale business model. Too bad. The emerging frontier in lean is sales and marketing. The good folks at Route 11 ought to think about checking it out. Or they could follow the professor’s logic and how they do against the likes of Frito-Lay selling one-chip-fits-all at Walmart.
Original: http://idatix.com/manufacturing-leadership/one-size-never-fits-all/
Steve H says
Your right about the professor’s logic – they wouldn’t have a chance in the world to compete with Frito-Lay in the one-chip-fits-all world.
I would love to find more lean food manufacturing references. Washes are a serious concern from both a microbiological and allergen control point of view and if you tell your QA Manager you want to reduce washing times they’re going to think your nuts. But I think the right person would know to find a better wash SOP and if you can shorten it while still promising (backed by enough testing) that its working, you would be laughing.
I can say from the point of view of the small food manufacturer I work for, they’re pushing for bigger lots sizes (larger days) vs. smaller ones.
Rick Bohan says
Good stuff. You guys are pretty smart when you stay off the political stuff.
Steve-
Are you sure you want to shorten washing times? Sounds like it 1.) adds value and 2.) is probably not high on the list of things that add to overall cycle time. I’m doing a project for a craft brewer. They have a similar “clean out all the brew tanks” step. Granted, you can’t brew beer while you’re cleaning out the tanks and there’s a clear upside to streamlining even the value added steps but there is a lot of other low hanging fruit to go after. Your mileage may vary.
Steve H says
Rick,
Good point – it is a value added step I suppose. For a brewer you would probably have to clean out the brew tanks and do a CIP (Clean in Place) wash for all the lines going into the packaging line too, right?
I’m thinking of other types of food manufacturing that might require lots of time to cleanup before a changeover. But I think you can be clever about it too. For example, don’t start running “Super Chocolate Chunk” Ice Cream before Vanilla. Start with Vanilla and work your way into the ones that need big washes. Just one thought (:
Rick Bohan says
CIP…that’s it. I couldn’t think of what it was called when I typed the comment. When I first found out about it, I asked a lot of questions, thinking it my warrant attention but was convinced that the organization had already focused on making the CIP as “short cycle” as possible. They had figured out, long before I got there, that having the brew tanks down, necessary as it might be in this case, wasn’t a plus. :-)
Steve H says
OK, can I ask? If that wasn’t it, where did you find other low hanging fruit? Now I’m curious!
No worries if you can’t talk about it.