Profitably Managing an Organization to Survive ... Long Run

Article

Walters, James E.; Brutchen, George W.   (1992, ASQC)   Ball State University, Muncie, IN 47306

Annual Quality Congress, Nashville TN    Vol. 46    No. 0
QICID: 9911    May 1992    pp. 889-895
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Article Abstract

The authors used a computer program to simulate various management strategies to demonstrate quantifiable support for the first of Deming's 14 points: "Management must create consistency of purpose for improvement of products and service" to ensure long-term growth.

The program computed a product's demand quantities, revenues, production costs, and profits over the product life. Variables were industry product life cycle magnitude and time horizon, learning rates for the industry and the firm, length of the company's interest in the market, investment costs, unit sales price, and production costs.

The case study presented assumed a 90% learning rate, unit sales price of $142.86, cost of first piece of $100, product life cycle of four years and the firm is launching a new product at the learning rate of 90%.

Results predict that early returns (first 3-4 quarters) will not meet profit expectations and the short term manager will eventually abandon the market. The manager for the long term continues to invest in programs and people and by 5th quarter is seeing rising profits and reductions in cost. In the even longer term, production costs are reduced and savings passed to customers in the form of lower sales prices. Lower prices expand the market to more customers.

According to this model, companies who manage for the long term benefit from satisfied repeat customers, survival of the organization, company growth, job security for employees.

Keywords

Deming's 14 points,Case study,Computers,Deming, W. Edwards,Management


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