Just One Step to Bankruptcy

This company has successfully developed a unique product that has helped keep the company’s performance so far. The company’s financial performance has not been preserved in the long run, so a main bank sent the vice president who hired a person from outside with top management experience, resulting in excellent productivity and consistent profitability improvement in a company, the hired methodology being MDC.

Then a MDC consultant was invited there, the company started FS, feasibility study concerning productivity and profitability for three months. The FS result shows the possibility of reducing the number of workers in a shop by 30 workers without capital investment. This meant 200 percent of productivity enhancing. Then after the performance control system would have been implemented, workers’ performance level would have been improved from 60% to 120%, measured with high task standard. So, within the shop a total 300 percent productivity improvement possibility was identified using mainly MDC and performance control.

After the presentation of this FS results, the top management asked the consultant that he could fire the 30 workers immediately as a consultant. Immediately after, the consultant replied NO of course, because FS is not auditing and/ or improvement itself, it is just estimation of MDC effectiveness and performance control as well. So, the MDC consultant support did not start the project, and the company went bankrupt two years later.

The CEO was the founder and owner of the company, and he simply asked the consultant for the above. He had a lack of modern management. Rationalizing and improving productivity are quite different and an MDC consultant never proposes to dismiss people for simplification.

As the figure shows the reduction of product cost, then BEP, the break-even point comes down from A to B, it makes the profit increasing, even present revenue, the possible result leading to increasing sales and production volume as well, so there is no need to fire employees.

The consultant made the presentation to the company, there was gold mining, however the CEO couldn’t find and catch the gold.

The following figure shows what could have been happening with the MDC application – Break Even Point (BEP) improvement through MDC (from point A to B):

Why do you think short-term thinking is often chosen to the detriment of a consistent productivity program?

Why are some CEOs quite reluctant to the obvious data presented in the above figure (obtained with measurements and materialized in a feasibility study of future productivity and profitability possible)?

1. Manufacturing Cost Policy Deployment(MCPD) and Methods Design Concept(MDC), The Path to Competitiveness,  Alin Posteuca and Shigeyasu Sakamoto, CRC Press, USA, 2017.

2. Beyond World-Class Productivity, Industrial Engineering Practice and Theory, Shigeyasu Sakamoto, Springer, UK, 2010.

3. Design concept for methods engineering in Maynard Industrial Engineering Handbook, the Fourth ed. Hodson, Shigeyasu Sakamoto, McGraw Hill, 1992.