The Wall Street Journal had a very interesting article today about the Aldi Grocery store chain. It is well worth the $3 you might pay for a printed edition at the grocery store.
The drift of the article had to do with the economies inherent in limiting customer choice. They were able to lower prices to customers and costs to themselves simultaneously and position themselves as a very tough competitor in the marketplace.
We do something similar to this. At my shop you can have any species you want as long as it is paint grade.
A door manufacturing shop could probably be very successful if they just offered shaker style doors. If they focused on turn-around time rather than options they could command a premium price.
The logic behind the Aldi Grocery chain success could be used to inform public policy, particularly in the arena of healthcare. If the goal of health care policy is to improve the health of the nation it makes little sense to promote a fragmented approach on a state by state basis.
Why would health care needs in one state be any different than health care needs in another state? How does a duplication of efforts in setting up systems do anything to lower the cost of health care? Many of the members of these state legislatures evaluate science through the lens of theology, Do we really want (or need) this much variability in product availability?
Interesting article in the Washington Post.
It explains how gerrymandering works.
This is the system that is used to ensure that one political party never has to give up a seat in Congress. If they can control how the voting district is defined then they can control whose vote matters. The Congressmen pick their constituents. The constituents don't pick the congressmen.
In Wisconsin the legislature packed most of the democratic voters into just a couple districts. The rest of democrat-leaning voters were carefully spread into districts that were dominated by republican voters, thereby ensuring they had no voice at all.
To be fair, the democrats do the same thing when they can.
The Supreme Court is going to take up the matter of gerrymandering next month.
If we can stop the gerrymandering (and kick out the Russians) we might actually get back to the kind of constitutional government the patriots on this forum love to opine about.
Mark Zuckerberg today said that the Russians bought 3000 ads on Facebook during the last presidential election. Trump said this morning this was "Fake News".
What works for Aldi may not work for me or the corner grocery store. I make a living offering a variety of products, the more unique the better chance I have to get the job.
As for sending more power and money to Washington, well that's not for me. As an example, our country has a fairly good road system, but the roads are built by the States and the local governments. If you need work done on your road, you call the local Road Commission, not Washington.
Yep, I used to do only white closet organizers because I bought white melamine ripped in 3 widths. Realizing I was missing out on a growing market, I changed processes to buying material for sold jobs and not for inventory in anticipation of jobs. Freed up a good amount of cash. That made it easier to close the fabrication/installation end of the business.
The choices at Aldi are too limiting. My wife won't shop there, even though it is the closest grocery store. Sam's Club keeps tweaking the product range they offer with fewer choices. As Sam's does away with products I buy at almost every visit, I now buy less at Sam's and more at other stores.
Cabmaker, keep selling that paint grade. I love offering the new embossed in register melamines for what are typically paint grade projects. Great thing about our business is no finishing involved. Cut and edge it - done.
I was an advocate of national health care insurance policies. The difficulty with that is the range of health care costs between urban areas, small towns, and rural areas. People moan about paying for other's preexisting conditions. Wait until they have them when they age. Can you imagine the debate for folks in Arkansas paying more because of the people in New York?
The health care debate is focused on the wrong problem. Lower health care costs through lean practices and educating consumers with transparent costs. Lower insurance costs would follow.
I read another article yesterday in the WSJ. This one was about some of the changes Amazon intends to implement in it's recently purchased Whole Foods rollout.
They have decided to eliminate the influence that Whole Foods vendors had in what products showed up on which shelves and how they were merchandized. Whole Foods used to rely on the food companies to do this for them. Their reasoning was that local representation could be represent local needs.
This is similar to the argument that individual states are somehow better in touch with the health needs of their citizens than a centralized bureaucracy.
The problem with this logic is that it depends too much on dogma.
The Ayn Rand tribe would, of course, depend on the invisible hand of the marketplace to drive down health care costs. The greatest capitalists in the world, however, see it different when they are spending their own money. They don't see any inherent advantages to fragmented decision making.
Maybe we should take our cues from our new overlords. They seem to know how to get it done.
This concept also supports the research that Jim Collins did for his book "Good to Great". It has been proven time and time again that the most successful companies concentrate on their core competencies. In our industry this would correlate to being the best in your market at producing the cabinets that 95% of customer buy, rather than being a "if you can dream/draw it we can build it" shop. Focus on customer needs, not their wants. They will bankrupt you with their wants.
We make standard size solid wood bookcases. We used to simply make them in one depth, 3 widths, and 7 heights. Last summer we increased the offering to 6 depths, 3 widths, 7 heights, and offered the option to order custom sizes. You would think that with all those new sizes and options that would have greatly increased our customer base and increased sales. Nope, not one bit. Sales only slightly increased, but rather than producing 21 skus, we now have over 100. Lead times have increased as result as well.
Inspired by both the book and the numbers, we will be going back to our core competencies to satisfy our needs, and gladly refer their "wants" to our competitors.
My favorite scene from the old Bob Newhart Show (where he played the psychiatrist) showed him and his wife in a restaurant with a surly waiter. Newhart says that the menu allows you a choice of vegetables. The waiter replies "Peas." Silence, and then Newhart asks "What is the choice?" The waiter replies "Do you want them or don't you."
I suppose one could take the Henry Ford approach (any color you want as long as it is black), or play into the boomer obsession with options, but either way you need to correctly identify your market.
Henry Ford could not make Model T's fast enough, but would that business model work today? Towards the end of being flexible, is the loss of standardized productivity worth the perceived increase in potential clients, as I think is the essence of what Jerry has said?
I think Aldi and stores like it rely on spot-market purchasing, which is why they don't always have the exact same items on an ongoing basis and are more price driven.
I don't think people shop at Aldi because Aldi has the brands that they like the most, or that Aldi caters to many options for a particular product, or that Aldi offers services that are unnecessary in the basic acquisition of groceries. The low price is the justification for no frills and limited options, and Aldi customers have made peace with that and accept it.
It would be as if you made bargain oak bookcases one month because you got a good price on oak, and then made bargain maple bookcases the next month because maple was cheaper than oak that month.
If your customer just wants a bookcase, no problem. If your customer that came in last month, saw oak bookcases but was still deciding, came in the next month and saw no oak bookcases but had his heart set on one, what then? If the customer expects the "bookcase of his dreams" from you, he may need to shop elsewhere.
One has to find that market-driven balance for one's own market, whatever that is.
With respect to healthcare, I have found this cartoon by Tom Tomorrow (Dan Perkins) to be the best explanation of American health care that I have encountered.
In our specific and particular market segment and situation, the perceived increase in clients compared to the actual increase has not been worth it at all. I thought that our numbers for our existing sizes would have remained constant while experiencing growth with all the new sizes. Instead we have just about the same amount of sale spread amongst a greater number of products.
95% of our customers come to us to solve an immediate problem they have..... storage, most of which could be served by our standard sizes we started out with. They come to us because they want an economical solution, but want something better than Ikea, but less than fine furniture.
So the question now is will the 95% of customers be better served and happier if we concentrate on our "core competencies" and can ship their order a matter of days rather than weeks? The answer seems obvious, but as we've learned the market can always surprise you. I'll let you all know the answer in the near future.
Here's another real life example. Has anyone eaten at both a Jimmy Johns sub shop or a Subway? They both solve my need which is to quench my hunger. At Jimmy Johhns I choose from 12 subs which come with pre-determined toppings. If I don't want one I can always say "hold the lettuce". From the time you pay to the time you have your order in hand is always less than a minute.
At Subway on the other hand, I always have a few people in line ahead of me. They have to choose between 9 different kinds of breads. Then 6 kinds of cheeses. Then choose the meat. The go down the line and meanders through 24 vegetable choices. Then 12 dressings (mayo etc), and then finally spices.
While both places produce a tasty product, I find I go to Jimmy Johns more often for the speed and convenience.
An interesting article, and also the article link inside the link. I would have to wonder what Hong Kong's healthcare system was like prior to the system that it has now. A system like that would meet with so much opposition in this country from the entrenched healthcare factions that it probably will not happen. Especially since the entrenched factions seem to be unable to agree among themselves.
Libertarianism takes on many forms, from those who despise any government interaction, to those who accept some intervention as a necessary evil but are always asking a question with the classic Libertarian preface "Is it the job of the federal government to.............?"
Some would question Federal weather-related damage relief, stating that it is not their problem that someone chooses to live in hurricane zones or tornado alley.
Some would question Federal subsidies for oil exploration, perhaps stating that the government does not pay them to find material to build that reception desk, and that the same should apply to industries across the board.
The cynic would say that a Libertarian is someone who has yet to avail themselves of government largess, but when they do so they will call it something else.
Myself, I like the Hong Kong system. Those who object to this level of "socialism" might do well to read Adam Smith's "Theory of Moral Sentiments", something that I always thought should be co-requisite reading along with "The Wealth of Nations". (it has been a long, long time, but if I remember correctly, the "invisible hand" makes its first appearance in Moral Sentiments.)
Considering the sum of money that the government spends, one would think that it could re-prioritize some of its spending in order to benefit a majority of its citizens, rather than the minority.
Owing to procedural rules the Senate has until September 30th to pass the Graham-Cassidy bill with just 51 votes. After that day passage of the bill would require 60 votes.
This bill funds health care by distributing block grants to individual states. The bill has been amended to send extra money to states whose Senators are wavering on whether or not to vote yes. In effect the bill writers are trying to buy the votes from the Senators from Maine and Alaska.
This bill allows individual states to set annual limits on health care. If someone in your family burns up their limit by April you are on the hook for all their remaining expenses until January of next year.
States could eliminate essential services like maternity care.
The states would be allowed to charge more for people with pre-existing conditions.
This bill does not take government out of health care it just fragments the process and loads it up with pork to help Senators get re-elected.
If we legalized drugs we would solve some of the problems associated with health care costs but we would create other problems elsewhere in the economy.
Drug interdiction is an industry much like the industrial/military complex Eisenhower warned us about.
The police unions very much want drugs to be illegal because this creates many of the criminals they depend on to keep employment levels and wages high. (Cops are high school educated $100K with full retirement benefits kicking in at age 50).
The lawyer industry depends on a steady flow of criminals. State prisons in backwater counties depend on criminals in order to produce wages for the people who warehouse the criminals.
Then, of course, there are privately owned prisons to contend with.
Parallel to this is the multiplier effect of untaxed illicit earnings. For a long time the Ford dealerships in north california were joined to the hip with marijuana growers in Humboldt county. If these earnings were taxed there would be fewer pickup truck salesmen.
Taxing is significant. It's the lack of taxation that frees up Amazon to continually plough money back into their business model. They don't show a profit so they don't have to pay taxes. Walmart, on the other hand, has to cough up billions of dollars in tax. Is hard to compete with free.
You are right that government creates cronyism but this concept is prevalent at any level of government.
I grew up in a town that had exactly one stop light until I was in my last year of high school. Today this town is 6 miles long and 2 blocks wide without a single two-story building. Why do you think that is?
To quote President Trump, "health care is complicated".
To think that 50 separate legislatures can create enough core competency to cost effectively design and administer 50 separate health care plans is beyond belief.
What are you going to do when you have a job offer in a different state that decided pre-existing conditions don't need to be insured?
Some legislatures actually write their laws based on scripture. Do you really want faith-based health care?
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