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Study: Custom product might not boost profit

April 15, 2008
Manufacture a unique product and your company will enjoy stronger profits and stay ahead of the competition, right?

Not necessarily, a new study has discovered.

Rather, manufacturers that focus on customized products don't always turn in profits as great as those that rely on mass production.

That's what Purdue University's Dauch Center for Management of Manufacturing Enterprises found in a survey of Indiana manufacturers.

"Those firms who had higher portions of customization didn't necessarily have higher proportion of profits," said Dauch Managing Director Mary Pilotte. "Don't assume you can offer everything your customers want."

The survey of 50 manufacturers was conducted last summer for the Indianapolis accounting firm of Katz Sapper & Miller. The firm intends to make the survey an annual event.

The finding flies in the face of the prevailing wisdom.

Manufacturers long have strived to make things that separate themselves from competitors. Manufacturers can charge a premium for a unique product, thus swelling bottom lines.

Or, so the theory goes.

Pilotte said that while the finding was gleaned from the survey, too little information was available to determine reasons.

Manufacturers might not be controlling costs well enough from development through manufacturing and distribution, she said.

Small manufacturers seldom use the sophisticated cost-control measures used by larger manufacturers, Pilotte noted. Most firms responding to the survey generated $11 million to $50 million a year in sales.

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