In my series on the Toyota KPI dashboard, after safety, quality, and productivity, we finally arrive at cost. While for some companies it is the number one factor, for Toyota it is far behind safety, quality, and productivity. The argument is that if safety, quality, and productivity are in line, it is likely that cost is also good. Both a lack of quality and a lack of productivity will drive up the cost.
Mass production makes items faster, better, and cheaper. The larger your production volume, the lower your cost and, subsequently, your product prices. This is common knowledge, but what is not well known is the magnitude of this effect. In this post I would like to show you a few comparable products, albeit with vastly different production volumes, and hence different prices.
As you surely know, it is more efficient to produce larger quantities. This is the economy of scale. In a recent post I talked about the Power of Six, a rule of thumb for the relation between lead time and cost. In this post I will show you a rule of thumb for the relation between quantity and cost. Credit for this rule goes to Juan Carlos Viela.
Time is money. You know that. But with respect to product cost and lead time, there is a rule of thumb that estimates this relation. Let me present to you the “Power of Six,” discovered by Rajan Suri. This gives you a rough estimate of how the lead time of your products influences the cost and vice versa. This first post looks at the original work, and my next post applies this rule also to segments of the value stream.