Database Reference
In-Depth Information
Focus on
throughput
Focus on cost
Time
Figure 7.1
throughput-oriented versus cost-oriented enterprises.
In terms of TOC, enterprises can be considered to be focused either on cost or through-
put. The enterprise's focus is directly related to
◾
Measurements focused either on reducing cost or building throughput
◾
Policies that dictate enterprise's responsive behavior
◾
Training that dictates improvement in the efficiency and effectiveness in executing
identified job responsibilities
A primary focus on throughput includes dealing with issues of customer loyalty and value
and how to increase throughput through employee initiative and productivity. In contrast,
a primary focus on cost only deals with decreasing the operating expenses (plant labor,
administrative costs, utilities, corporate overheads, depreciation, sales and marketing
expenses, and so on) and investments (assets like buildings, equipment, fixtures, as well
as cost of the inventory). Figure 7.1 contrasts the characteristics of a throughput-oriented
versus a cost-oriented enterprise. Cost-focused enterprises via cost-cutting efforts initially
experience quick and dramatic improvements that are followed eventually by stagnation,
financial losses, and loss of competitiveness. In contrast, the throughput-focused enterprises
show a slower start to improvement that reflects time expended on analysis, understanding
and confirming customer needs, researching offerings, gaining buy-in from employees and
partners for the proposed offering, devising the offering, launching and testing the offering,
and, finally, installing, servicing, and supporting the offering. But, this is usually followed
by a phase of exponential improvement.
Costs cannot be ignored, and cost cutting may seem to work in the short term, but this
cannot create the kind of return of investment (ROI) that keeps shareholders around for the
long term.
