What is Your Cost Model Costing You?

Our new expert in our Lean Machining Zone cautions manufacturers against using an activity-based costing method. This line of thinking makes it hard to justify needed improvements.


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Greg Eckerman, the new expert in our Lean Manufacturing Zone, says he sees a danger with manufacturers’ use of activity-based costing methods. The danger has to do with the organization-wide costs that get added in equal measure to the costs of discrete production parts. When these costs get too big, he says, manufacturing improvements become hard to justify. Think about it: Most manufacturing improvements have to do with a focused aspect of the process, yet the impact of the improvement has to be big enough to be felt against the organization-wide expense. For this reason, he thinks the value of manufacturing improvements is routinely understated by a factor of 3.
Read the argument here. I’d love to hear what you think.
Learn more about Greg and his background here—and ask him any questions you may have about your own facility’s implementation of lean manufacturing or Six Sigma.