Monday, March 9, 2009

Marginal Analysis and Lean Management

This post relates to the following Keystone Economic Principles:
1. We all make choices.
2. There ain't no such thing as a free lunch.
3. All choices have consequences.
7. Economic thinking is marginal thinking.

One of the catchphrases in manufacturing has been "lean". It refers to a firm's ability to use the fewest resources (particularly workers) and to use them well. But what does that imply in slow economies? There's a good discussion of that question in this article from today's edition of The Wall Street Journal.

The article uses a plant in Spartanburg, South Carolina, to discuss the type of choices facing lean manufacturers as they deal with slumping demand for their product. When a firm runs with few employees, and those employees are highly-skilled and each contributes a substantial amount to the bottom line (we're not talking sales staff, we're talking line staff), losing even one of them could have serious repercussions on the ability of the firm to meet customer demand and expectations.

The article provides a good example of marginal thinking and the consequences of the choices faced by a business in a downturn. I highly recommend it.

Please feel free to share any thoughts and observations that you or your students may have.

1 comment:

doshimaitri said...

When the working becomes tough with few no of the employers the tough situation could be solved by lean .And to survive in this situations their the managers should be capable enough as well as adaptable to put any changes.