As Fortune points out in its latest issue (Nov.15,2010, p.21), in an article called “When Less is….Less?”, everything shrinks during a recession: GDP, your stock portfolio, and most definitely, products on a store shelf.
In Chapters 5 and 7 we allude to the choices the OM manager has to help increase profits when price increases are a bad option. Here are three: (1) cut your raw material costs, if possible; (2) cut the quantity—did you notice that OJ and ice cream containers are smaller?; (3) enhance the product –maybe a richer ice cream, or a stronger rake, or more miles between oil changes?
As one example, here is Fortune’s sad tale of your shrinking roll of Scott 1000 toilet paper over the past 15 years:
1995 –size of a sheet is 4.5 x 4.5″ when Kimberly Clark buys Scott Paper.
1999–size now 4.5 x 4.1″–called a “softness enhancer”.
2006–size drops to 4.5 x 3.7″–a nice pattern is added.
2010 –size reduced to 4.1 x 3.7″–“a 10% stronger tissue”.
The OM implications: not only less raw material usage, but smaller packages mean 12-17% more units fit on a truck. With fewer trucks, fuel use drops by 345,000 gallons per year.
Discussion questions:
1. Ask your students to name some other products that have “been enhanced” to increase profits or save money.
2. Besides smaller sheet size, what else can be done to reduce costs? (This was an alternative strategy chosen by Georgia-Pacific and P&G’s toilet paper changes).
3. How does sustainability enter the picture as an OM tool?