In the absence of exact predetermined costs, many companies delegate to engineers and buyers the responsibility for making decisions such as line closures, utilization of facilities, managerial and technical skills, and relationships with sellers. These decisions should be made with basic administrative objectives in mind. For this, the following considerations will have to be taken into account, which will help to make decisions about whether or not to close lines.
A standard direct costing system provides four elements that facilitate decision making:
1.- define the separation between fixed and direct expenses.
2.- exact estimation procedures to predetermine direct costs of products.
3.- efficient method to determine specific additional fixed costs that could be needed for the counter purchase of a certain good
4.- logistical bases to calculate the additional capital that would be necessary for a certain good to be the same as if it were bought from an external seller.
Many companies have formed committees that are responsible for making decisions to withdraw a product line or products from the market and are integrated with representatives of the interested departments.
When such commissions are well organized, decisions are made quickly. The following is a procedure for making decisions about recalling one product and / or replacing it with another.
1.- specify the different processes, operations and current tools that are being used.
2.-control of production that estimates the quantities required.
3.- the product has a captive market that gives us the possibility of generating wealth.
4.- the product is being accepted by our clients, depending on the quality and price.
5.- The cost analysis selection makes a preliminary breakdown of the offers, using appropriate formulas to set prices.
6.- A comprehensive detail of specifications, roadmaps and tool orders is prepared
7.- the production makes an accurate forecast of uses and evaluates the available capacity.
8.- industrial engineering makes a better application of data and material orders.
provides an estimate of the cost of facilities and tools.
9.- quotes are obtained from external sellers.
10.- the commission that makes the decision to withdraw or replace the product reviews the background and gives its verdict.
11.- The control office reviews the results, and indicates about deviations produced in the commission's estimates.
As long as the products contribute to the profit, it is very difficult to have the unanimous approval of the sales executives to remove them from the line.
When the prospects for a product are not clear, consider replacing it with one that has future profit and growth potential.
What we prioritize in our sales:
The desire to sell more, faces an undeniable dilemma: that of its quality.
If to this we add what is intrinsically rooted in our Latin culture, we will understand how in the vast majority of cases quantity is prioritized over quality.
Quality is understood as the degree or level of satisfaction perceived by each buyer of products or user of services.
Product modification
It is any deliberate alteration in the physical attributes of a product or a container. The decision to modify a product is mainly related to those that are already in the mature or saturation stage of a life cycle and need to rejuvenate with changes in design.
Strategies:
- improve its quality: increase the duration and efficiency of the product using better quality materials, as well as adequate mechanics. perfect its values: refers to the fact of increasing the number of real or psychological benefits of the product for the consumer.
* renew or refine your style: modify the aesthetic appeal of the product, without affecting its functional appeal.
Disposal of a product
Products govern the income of a company, so it is sometimes necessary to eliminate unprofitable products, because failure to do so would reduce the ability to take advantage of new opportunities.
The vast majority of companies have adopted normal procedures for the disposal of products, these procedures are usually done little by little or sporadically.
Under quality control
We are in a fast-paced but demanding world, product failures are unacceptable, and markets quickly drive out those who do few professional jobs.
Properly balancing costs with quality is an art that if not learned will be synonymous with failure.
Marketing failures:
- Bad advertising Unattractive packaging and disclosure Poorly conducted research and segmentation Channels of distribution and
Obsolete and few effective marketing.
Unexpected market reactions
The acceptance of a product sometimes depends on fashion.
Success is synonymous with fashion, Quality, price and opportunity.
Maladministration
It is the most logical factor. Making decisions involves risks and some risk will always be present.
A good administration must know how to play with its alternatives, make decisions that guarantee stability and long-term growth and maintain a responsible and correct management of companies.
Additional factors:
- Poor investment security Incorrect cost estimates Inappropriate expense allocation Poorly presented product
Failure is a possibility that can be avoided if you work with professionalism, a long-term vision and with clear and serious objectives and studies.
Example of removing a product:
Also known as reinvestment.
It is one of the most appropriate techniques to achieve healthy growth while maximizing the value of the company.
Many companies are reluctant to eliminate a certain product line, but for reasons
Sentimental than rational.
As an example of this, the opinion of a general director of a group from Monterrey:
“I know that this line shows accounting losses and its contribution margin is negative, but we cannot eliminate it because the group was born with it. It's part of our history"
The personal sentiment of the executives is respectable but that group would grow and be more solid if that line were suppressed.
This happens frequently in Latin America.
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