Business Management Articles
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ZERO MANAGEMENT

by Rene T. Domingo (email comments to rtd@aim.edu)

The classical Western management philosophy tells us that in every business decision, there is always an optimum solution that lies between two extremes. It is just a matter of finding where this happy middle lies scientifically or by trial and error. Thus to get an "acceptable" ROI, one should sell at the "right" price, produce at a "reasonable" cost and quality levels, carry "safe" amount of inventory, and deliver the goods to the customer at some "satisfactory" time.

The Japanese discovered early in the game that it was not only difficult to determine and implement the optimum solution; it was making the uncompetitive, inflexible, and unprofitable. In short, it didn't work. So they decided to re-invent business by casting away all the time-honored rules taught by their Western mentors. They changed the game from the of OPTIMIZATION to one of MINIMIZATION.

In brief, the ultimate, though theoretical, winner would be the company that could sell at an infinitesimal price (short of giving it away for free), with zero cost, zero defect, zero inventory, and zero lead time. The rewards? Boundless profits, infinite sales, overflowing cash, and 100% market share forever.

Major manufacturing companies in Japan, ranging from automobiles to electric products, have enjoyed world-wide success by employing this bold business concept which I call Zero Management (ZM). Though none has actually achieved the zero levels, the zero targets have effectively guided their decision-making and strategy development. Moreover, the fixed zero targets are clearer objectives than the vague, often arbitrarily set, "optimum" levels that change with management and management style. It is easier to hit a fixed than a moving target. The Zero is like the North of the compass; you may not reach the North Pole, but the compass will tell you if you're lost or in the right direction.

The important zero targets of world class companies are:

ZERO PRICE - generally, in the long run, the lower the price the closer you are to the customer ( and his pocket ), the more competitive you become, the larger your market share becomes and the longer you can hold on to it.

ZERO COST - the lower the cost, the lower you can price and get the benefits above; profits are increased with constant prices and maintained during price wars, thus ensuring the firm's survival; lower cost enables the firm to lower prices when entering new markets or increasing market share.

ZERO DEFECTS - the fewer the defects, the move loyal and more repeat customers there are; the lower the cost, the more competitive your products and services become.

ZERO INVENTORY - the lower the level of inventory, the lower the costs, the higher the quality, the lesser the risk of obsolescence, and the easier to manage the production flow.

ZERO LOT SIZE - the smaller the lot size, the lower the inventory, the easier to manage production flow and quality.

ZERO SET-UP TIME - the shorter the set-up time, the smaller the lot size and the lower the inventory od any product, the more variety of products can be made, the easier and more flexible, the lesser the risk of obsolescence due to over-production.

ZERO LEAD TIME - the shorter the lead time, the shorter the order time and response time to customers' needs and changes in these needs, the more timely delivery performance will be, thus beating the competition and lower the inventory levels will be.

ZERO DOWNTIME - the shorter the downtime, the lower the inventory to cover the risk, the shorter the lead time and the more reliable the delivery schedules will be.


 

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