For better understanding – understand the following situation deeply.
Formula for profit is
Profit per unit = selling price per unit – manufacturing cost per unit
Day by day manufacturing cost is increasing as it includes many parameters like manpower cost, raw material cost, power, fuel, transportation, etc.
Every year many of them are increasing and this results in higher manufacturing cost. With this, the profit gets shrink. So to sustain profit one will have to increase the selling price and we all know in a competitive market one cannot increase selling price as there is a lot of competition.
So every year this profit and profit margin is going down and one day will come when profit will turn in to losses. And continuous losses may close their business. To save this situation organization should be active and they should work on second factor and this factor is to reduce manufacturing cost.
Manufacturing cost can be reduced with many ways out of this one is with better productivity.
All we should be agree with one fact that all industries don’t do work in the same way. There will be someone who will do work nicely than others in many aspects like quality, price, and delivery. The organization who is doing well in all aspects will sustain in the longer term. The best industry always works on productivity improvement because they know this will only save them from future threats.
All we know benefits of productivity improvement but
With this example, it is very clear that the organization who works more on productivity improvement will sustain longer and will have a bright future.