Profitability and Competitiveness of the product


The profitability and competitiveness of the product depends in the design of the products. The design depends on the specifications fixed in advance. Thus development of proper specifications is very important for any management. Only properly fixed specifications can contribute to a great extent to the firm’s profitability. It is very difficult to reduce the cost of production by adopting labor saving devices or other devices resulting in increased productivity because of the expected labor resistance or strong protest from them. Cost reduction by way of changes in design may also invite some pressure from labor force but it may not be too severe. Control at the design stage really helps in reduction of material costs because it is the first stage. If the cost is not controlled at this stage, it will continue to be incurred until somebody else finds out the defect e.g. if 40 parts are used instead of 30 parts (which would have become possible if strict control had been exercised at the design stage) to make a product, use of 40 parts will become a permanent feature, because once the design is fixed for a particular product, generally it is not changed, unless and until the manufacturers think otherwise. Thus the cost of 10 parts will be incurred unnecessarily. Sales volume also depends on the design. Thus design is very important for proper specification.

It is very difficult to fix proper specifications because conflicting views of various departments are to be considered for this purpose e.g. sales department desires that the product should be unique with special features, to increase the sales, while the engineering department considers design excellence as important which may make the production process more complicated and sales may not increase. Production prefers such design which is very simple to work out which reduces the cost of production per unit and also the quantity of materials or number of parts used per unit. All departments must work with full co-operation among them, in the interest of the unit. When design engineer prepares specifications without consulting any other department, the specifications become very stringent, which may crate many problems. Skilful management can motivate the departments and solve various problems that may arise against fixation of proper specifications. Proper specifications must serve the following objectives:

1) Specifications must be, as far as possible, simple and economical to produce.
2) Materials should be available easily in requires quantity at reasonable prices.
3) Specifications must be such so that the product becomes acceptable to consumers. A best product may not have buyers in the market.
4) Specifications must ensure smoothness in production activity. The factory must function well without any obstacle.
5) It must be possible to check the conformance to the specifications
6) It must be possible to substitute materials when it becomes necessary.

Proper / right specifications result in increased sales, decreased costs and stronger competitive position. The following points should be considered while preparing the specifications

a) Specifications must be as clear and explicit as possible, so that buyers and sellers both may understand the same thing in the same way.
b) Specifications should be written in such a way so that maximum number off suppliers can bid and misunderstanding can be avoided. If specifications are not practicable very few suppliers may bid, which minimizes competition thereby making the choice by the buyers limited.
c) Specifications should not be written keeping in view a certain product only, because the competition will become very, very limited e.g. suppose only one company makes a particular type of part called “A”. Now a manufacturer states in specifications that his / her firm will use that particular part (i.e “A”) in making a machine. Here the firm restricts the competition by making it clear that the firm will use using that part, which only one company makes. Here the firm will have no other alternative than only to purchase that part from the sole manufacturer (company) only.