The Value of Less

The Wall Street Journal recently reported Porsche is limiting production despite an increase in demand for its vehicles.  Without going into too much detail on the article, the idea is that the brand should remain exclusive in order to maintain, or even drive up, its value.  It seems that value from the customer’s point of view in this case is not simply a high performance luxury car.  There is value (at least for some) in owning a car not everyone can have.  Value in the customer’s eyes is not limited to the car itself.

Limiting production could be an important part of providing value to the customer in other ways.  After all, it’s not just the widget the customer wants.  It’s important to be mindful of all aspects of value the customer is paying for.

Suppose a customer is using a widget as a component in their final product.  The customer reasonably expects a quality product on time.  On time delivery is agreed to by the supplier.  There is value in keeping the customer in production–value beyond that of the component itself.

There’s more at stake than short term sales

Now suppose the widget you make becomes more popular among finished product manufacturers or the demand for the first product increases beyond your capacity.  Increasing production obviously becomes a priority (assuming exclusivity is not the value you intend to deliver).  But is increasing production to match customer demand necessarily the right thing to do for the right reasons?

Of course giving customers what they need is what any business should do.  When resources are stretched, something invariably will give.  In supply crisis situations it can be difficult to remember what is best for the customer and for the supplier.

Growing too quickly can lead to problems.  Quality would be my first concern as increasing capacity rapidly often requires rapid changes in the infrastructure of the value stream.  Adding labor and production equipment takes time to do properly.  If rushed, these changes can cause more problems than they solve.

Rapid growth can be a curse

If a tree grows too rapidly, the bark can be stretched thin and split.  This leaves the tree susceptible to infection that could kill it.  The same holds true for business.

Growing too quickly could stretch resources beyond capacity.  The infection the business is susceptible to is a degradation of core values and principles for the sake of increased sales.  While revenue may increase in the short term, rapid changes could compromise the culture that made the business strong to begin with.

The customer wants the widget in higher quantities.  The customer also wants quality, reliability, predictability and on-time delivery from its suppliers.  A defective product delivered in large quantities is worth less than a quality product delivered in lower quantities.

I’m not suggesting that the supplier shouldn’t make every effort to meet customer demand.  The point is that all aspects of value must be considered in determining the rate of growth.  The integrity of the product and its underlying processes must not be compromised.  The reputation of the supplier is at risk and that reputation has value.

Consider the bigger picture just as Porsche has done.  Make decisions based on the long term health and success of the business even at the expense of short term profit.

 

 

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