The Focused Factory and Understanding Product Profitability

Michael Watson Ph.D Partner
Read Time: 2 minutes apprx.

Businessweek New England Paper Tube Plant in Post


Last month, Bloomberg Businessweek ran a story on how the New England Paper Tube company made a comeback from bankruptcy by focusing on the products it could make profitably (and that no one else could).  It is worth a quick read– it is a very small company, but has two interesting lessons.

The first lesson is the value of focusing your factory (or operations) on what you are good at and what others have difficulty with.  Once this factory turned its attention to a type of cardboard tube that only it could make well and that was profitable, it was able to grow.

This is a case study that reinforces the ideas in the classic HBR article, Focused Factory, by Wickham Skinner.  This article was written in 1974.  It is a bit dated, but I still use it in an Operational Excellence class that I teach.  A few students end up hating it because it is dated.  But, there are always a few who really like and say that the lessons applied to their operations.

The second lesson is that the manager of the plant did a product by product analysis to determine the profitability of every product.  He pointed out that one product cost $9 to make and sold for $0.40.  While this is extreme and many companies do this type of analysis, we see a lot of firms who don’t go beyond the cost of raw material and cost to produce.  For a better analysis, you can consider the inventory costs (especially important for items with a lot of variability), the cost to transport (especially true for bulky or heavy items), and the costs of warranties, returns, or other complexities.