Raising Productivity.
Many U.S. companies assaulted by foreign competition made prodigious efforts to improve their productivity—closing inefficient plants, automating heavily, and negotiating wage and benefit cutbacks and work-rule concessions with unions. Many also began programs to heighten productivity and improve product quality through employee motivation. These cost cuts stood U.S. firms in good stead as they tried to use the weaker dollar that began in 2002 to gain back market share lost to foreign competitors.
Another way to improve productivity and lower one’s cost structure is to revise product offerings. This is the route now being taken by the Japanese. Despite their vaunted super-lean production systems, many Japanese firms, in an attempt to gain market share, have created too much product variety and offered too many options to customers. The result is that parts makers and assembly plants have to accommodate very small and very rare orders too frequently. This variety requires too much design work, too much capital investment for small-volume parts, too many parts inventories, and constant equipment setups and changeovers. By slashing variety to the 20% or so of models and product variations that account for 80% of sales and profits and by reducing unique parts by 30% to 50% for new models, Japanese companies are finding that they can dramatically reduce costs without sacrificing much in the way of market share.