3 New Costs Labor Material SG&A Overhead US Plant Labor Material SG&A Overhead Non-US Plant
Class Summary GE’s Experience Illustrates: Benchmarking (relative cost position analysis) is a key first step to make vs. buy and plant location decisions. Key question to ask: “Are we as good as the best in the world at this activity?” Be careful about letting “nationalistic” ideals unduly influence decisions (need a geocentric mindset). Also, understanding the technology is critical for top managers to make the right decisions. Benchmarking Example Illustrates: Firms may need a dedicated “competitive intelligence” team to continuously benchmark competitor practices. Focus on key cost areas (80/20 rule). Don’t waste resources Detailed analysis (data) on processes and practices (visits, interviews) is necessary to understand what processes to actually change/adopt.
BENCHMARKING (RELATIVE COST POSITION ANALYSIS) COMPARISON OF PROCESSES AND PRACTICES TO IDENTIFY LOW COST PRACTICES AND QUANTIFY TARGET COST SAVINGS POTENTIAL PLANT VS. PLANT PROCESS VS. PROCESS MACHINE VS. MACHINE EMPLOYEE FUNCTION VS. EMPLOYEE FUNCTION SG&A Overhead Direct Labor Material SG&A Overhead Direct Labor Material $200 150 100 50 0 Client Plant Competitor Plant Manufacturing Cost Per Unit (Dollars)
Benchmarking Raw Materials (material per piece; scrap per piece) Labor (number of direct/ indirect employees, wages and fringe rates) Capital Investment (building/ machinery type, age, & cost) Transportation (cost per container, pieces per cont.) Advertising Corporate Overhead (SG&A expenses; number of sales/ officers) Material analysis, commodity mkts, suppliers, purchasing. Chamber of commerce, Dept. of Labor form EE0-1; corporate phone books, headcount, past employees. Chamber of commerce, contractors, machinery mfgs. Common carriers, physical examination, proc. & supply. Leading National Advertisers (LNA); count. Annual reports, former employees. Expense ItemSources