3e2a1b56-dafb-454d-87ad-86adea3e7b86

Chapter 2 Operations performance 51
garment manufacturers attempt to cut out the various pieces of material that make up the
garment by positioning each part on the strip of cloth so that material wastage is minimized.
All operations are increasingly concerned with cutting out waste, whether it is waste of
materials, waste of staff time, or waste through the under-utilization of facilities.
Short case
Being cheap is our speciality 8
Hon Hai Precision Industry is sometimes called the
biggest company you have never heard of. Yet it is one
of the world’s largest contract electronics manufacturers
who produce many of the world’s computer, consumer
electronics and communications products for customers
such as Apple, Dell, Nokia and Sony. Since it was
founded in 1974, the company’s growth has been
phenomenal. It is now the world’s biggest contract
manufacturer for the electronics industry. Why? Because
it can make these products cheaper than its rivals. In
fact, the company is known for having an obsession
with cutting its costs. Unlike some of its rivals, it has
no imposing headquarters. The company is run from a
five-storey concrete factory in a grimy suburb of Taipei
and its annual meeting is held in the staff canteen.
‘Doing anything else would be spending your money.
Cheap is our speciality’, says chairman Terry Gow,
and he is regarded as having made Hon Hai the most
effective company in his industry at controlling costs.
The extra business this has brought has enabled the
company to achieve economies of scale above those
of its competitors. It has also expanded into making
more of the components that go into its products than
its competitors. Perhaps most significantly, Hon Hai has
moved much of its manufacturing into China and other
low-cost areas with plants in South-East Asia, Eastern
Europe and Latin America. In China alone, it employs
100,000 people, and with wages rates as low as one-fifth
of those in Taiwan many of Hon Hai’s competitors have
also shifted their production into China.
Source: Empics
All performance
objectives affect cost
Cost reduction through internal effectiveness
Our previous discussion distinguished between the benefits of each performance objective
to externally and internally. Each of the various performance objectives has several internal
effects, but all of them affect cost. So, one important way to improve cost performance is to
improve the performance of the other operations objectives (see Figure 2.10).
●
●
●
●
High-quality operations do not waste time or effort having to re-do things, nor are their
internal customers inconvenienced by flawed service.
Fast operations reduce the level of in-process inventory between and within processes, as
well as reducing administrative overheads.
Dependable operations do not spring any unwelcome surprises on their internal customers.
They can be relied on to deliver exactly as planned. This eliminates wasteful disruption and
allows the other micro-operations to operate efficiently.
Flexible operations adapt to changing circumstances quickly and without disrupting the
rest of the operation. Flexible micro-operations can also change over between tasks
quickly and without wasting time and capacity.