Determining Factors of Product Sales and Profit - Term Paper Example

To What Extent Can Improvements In Productive Flow And Product Quality Lead To An Increase In Sales And Profit? Introduction Sales and profit are very important factors in business. Managers have to set goals to ensure increased sales and profit so that the company cannot fail. There are so many ways through which profits can grow, and sales increased. A company can reduce production costs, labour costs and even outside costs. Improving sales depend on a number of factors. An example is market research to determine types of customers available in the market. Additionally, there is product price, product quality, customer preference, and economic stability of a market. Product quality and productive flow are also factors that affect sales and profit. They have various ways through which they affect sales and profit (Shaharudin, Mansor, Hassan, Omar & Harun, 2011, p. 8163; Shetty & Buehler, 1991, p. 8). The extent, through which product quality and productive flow can increase sales and profit, can only be shown through explaining the effect of these two factors on sales and profit. How improving these factors can lead to increased sales and profit, will clearly be produced in the explanations given about their effects. The essay is, therefore, divided into two main sections: The effects of product quality on sales and profit, and the effect of productive flow on sales and profit. These will show the relationship between product quality and productive flow to sales and profit hence; help in understanding how improving the two factors can lead to increased sales and profit. Effect of Product Quality on Sales and Profit The main element that brings value to a customer in the market offering is the product. A product is more than a tangible object. It includes performance quality, service features, brand name, design and packaging. The quality of a product is very important since it affects the product performance and so is connected to customer satisfaction and value (Shaharudin, Mansor, Hassan, Omar & Harun, 2011, p. 8164). Consumers of today seek high quality products. The only problem is different perceptions held by customers about quality. Any company interested in selling its products should conduct thorough market research, depending on the type of product they have, to determine what their consumers perceive as high quality. Consumers in the United States, for example, rank quality based on reliability of a product, durability, easy maintenance, ease of use, brand name and the price. This is specifically on motor cycle products (Shaharudin, Mansor, Hassan, Omar & Harun, 2011, p. 8164). Improving the quality of a product, therefore, increases the sales of a product. Sales depend on customer satisfaction and value, and product quality is one way of satisfying the customer and offering something of value depending on the customer. The extent to which product quality affects sales is great. This is because, for goods to be sold, customers have to want, need or prefer them. Preference is most common where there are a variety of products with different features, prices, brand names, quality and so on. Product quality is a determining factor in preference for a product, so affects sales. Customer satisfaction and value is vast. There are different customers with different tastes, needs, and economic capability. All these determine the preference hence the intent to purchase a product (Shaharudin, Mansor, Hassan, Omar & Harun, 2011, p. 8164). Product quality is the totality of a product or service characteristics that give the product or service the ability to satisfy given needs. If a product fulfils a customer’s expectations, the customer becomes satisfied and begins to build loyalty. Loyalty is developed through trust and positive relationship with the customer. Customer loyalty retains customers and contributes to the number of sales made in a given period of time. This clearly indicates one of the various ways through which product quality affects sales (Jahanshahi et al, 2011, p. 255-256). Increasing sales requires retaining of customers and attracting new ones. Quality is one of the important characteristics through which new customers can be attracted, and the old ones retained. Improving quality, therefore, increases sales and profits through increasing the number of customers that a company already has (Jahanshahi et al, 2011, p. 255-256). Product Quality and Profitability Quality reduces costs and improves sales hence increases profits. This is because when working towards quality, errors and defects are eliminated and this reduces labour costs and /or machine hours. It reduces the cost of materials when wastes and scrap are reduced. It reduces service costs that in turn decrease labour costs. It reduces the level of inventories for replacement and inspection costs. All these contribute to low cost of production that can be used increase profit margins (Shetty & Buehler, 1991, p. 8). Costs of products affect profit margins. Increased costs reduce profit. Reduced cost of production also affects profitability indirectly. It stabilizes the jobs of the employees and makes a company more stable. This motivates the employees. Employee motivation contributes to increased sales and profitability through improved productivity. Company stability also contributes to competitiveness that affects market share and sales (Shetty & Buehler, 1991, p. 8). Product quality enhances sales. Product quality affects the market share and sales of a company. Research has shown that a firm’s reputation for quality improves chances of enhancing market share and sales. A reputation for higher quality decreases the elasticity of demand giving companies the opportunity to charge higher prices and get higher profit margins (Shetty & Buehler, 1991, p. 9). Effect of Productive Flow on Sales and Profits Improving productive flow means developing an effective production plan that will ensure availability of materials, human resources, and equipment to complete the work. A production plan is a road map to achieving the objectives of production. Improving productive flow should ensure improvement of process flow and elimination of wasted time to reduce labour. It should reduce excessive work in process inventories and the need for safety stocks to reduce inventory costs. It should improve on-time deliveries of services and products. Improved productive flow should maximize equipment capacity and optimize its usage. It should also make use of the full potential of the human resources (Kumar, 2006, p. 79). It means that the extent to which productive flow can affect sales and profit is based on: The effect of reduced labour on sales and profits The effect of reduced inventory costs on sales and profits The effect of on-time deliveries of products and services on sales and profit The effect of maximized equipment capacity and optimal usage of equipment and The effect of the use of the full potential of human resources Reduced labour reduces labour costs. Considering the method of improvement, the sales are considered constant. Profit is the difference between sales and costs. Any cost increases that do not lead to corresponding increases in sales reduces profit. A step that reduces excessive costs such as the ones described above, therefore, contributes to increased profits. This also applies to reduced inventory costs (Dittmer & Keefe, 2008). On-time deliveries of products and services affect sales and profits indirectly. On-time deliveries improve efficiency of the productive flow. Efficiency is a very important factor in business success. It improves the competitive advantage of a company. It can work to motivate employees which then contribute to overall company performance. It can work to help businesses develop new initiatives and grow. There are several ways through which efficiency of a system can contribute to the success of a business. Growth of a business can contribute to increased sales through increased market share, for example, if a business is able to expand to various markets and produce its products through low cost, like the Toyota production system. Efficiency also contributes to the production of high quality products. Product quality as previously indicated, determines the customers’ loyalty, purchase decisions and in turn affect sales (Toyota Motor Corporation, 2012). Maximized equipment capacity and optimal usage of equipment also reduce costs and improve efficiency. Effective human resource management also contributes indirectly to increase or decrease of sales of a company. It helps improve the competitive advantage of a company. It forms part of management to ensure product quality. Sims notes that there is evidence showing that “human resource practices have a direct bottom-line effect on organizational profitability” (Sims, 2002, p. 38). Human resource management progressive organizations, for example, have been found to have higher sales growth, equity growth, profit margins and earnings per share. Higher performance work practices have also been associated with the increase in per-employee sales volume (Sims, 2002, p. 38). Conclusion From this discussion, it is understandable that reduction of costs is a common way of ensuring improved sales and profits, when productive flow and product quality are improved. Product quality affects customer satisfaction, loyalty, and value; all which are very important determining factors of product sales and profit. Product quality ensures reduced re-work, warranty, lower inspection, lower product liability costs and less scrap that reduce the total cost of production. This contributes to improved profitability. Improving productive flow reduces some types of costs that contribute to the overall reduction in cost of production and improves efficiency. There are two ways through which it can lead to increased sales and profit; improved efficiency and reduced costs. Reference List Dittmer, P. R. and Keefe, J. D., 2008, Principles of Food, Beverage, and Labour Cost Controls, 9th Ed., New York: John Wiley & Sons. Jahanshahi, A. A., Gashti, M. A. H., Mirdamadi, S. A., Nawaser, K. and Khaksar, S. M. S., 2011, Study the Effects of Customer Service and Product Quality on Customer Satisfaction and Loyalty, International Journal of Humanities and Social Science, 1(7):253-260. Kumar, S. A., 2006, Production And Operations Management, New Delhi: New Age International. Shaharudin, M. R., Mansor, S. W., Hassan, A. A., Omar, M. W. and Harun, E. H., 2011, The Relationship between Product Quality And Purchase Intention: The Case Of Malaysia’s National Motorcycle/Scooter Manufacturer, African Journal of Business Management, 5(20): 8163-8176. Shetty, Y. K. and Buehler, V. M., 1991, The Quest for Competitiveness: Lessons from America's Productivity and Quality Leaders, Westport, CT: Greenwood Publishing Group. Sims, R. R., 2002, Organizational Success Through Effective Human Resources Management, Westport, CT: Greenwood Publishing Group. Toyota Motor Corporation, 2012, Toyota Production System. 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