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Relationship between Profitability and Cost

It is advisable to be aware of the relationship between profitability and cost in regard to variations occurring in the market, thus preventing undesirable outcomes. In other words,

  • • Profitability is a function of cost with a trend of declining sales price with regard to the competition conditions.
  • • Today, as a result of a global economy, sales price is not an issue determined by the management.
  • • Cost issues should be taken under control, and the information, systems, and organizational structures necessary for continuous reduction should be duly created.

Consequently, while examining the relationship between profitability and cost, bear in mind that a vast majority of the portion referred to as a quasi-cost consists of losses.

Therefore, the main aim is to be free from all wastes and losses burdening operations (George and Maxey 2004). The main operative strategy is, by increasing the speed, to reduce the duration of the stream and improve the quality, cost, and delivery performances. Accordingly, aligning material or information and value-added activities with customer requirements is very important. In short, the goal is to eliminate waste and loss in all operations, including

  • • Defects in products
  • • Overproduction
  • • Reactive quality controls
  • • Unnecessary materials handling
  • • Inventories of semifinished and finished products
  • • Unnecessary and non-value-added processes
  • • Employees on waiting time and unnecessary movements of workers

Therefore, remove the sources of waste and losses, such as

  • • Inefficient working methods
  • • Long setups
  • • Inefficient processes
  • • Lack of training
  • • Inefficient maintenance
  • • Long distances
  • • Lack of leadership
 
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