Hidden 20Factory
The Hidden Factory
Jeffrey G. Miller and Thomas E. Vollmann
Harvard Business Review
No. 85510
This document is authorized for use only by Christopher Bourbeau (cebourbe@illinois.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
HBR
SEPTEMBER–OCTOBER 1985
The Hidden Factory
Jeffrey G. Miller and Thomas E. Vollmann
While the world’s attention is focused on the fight to increase productivity and develop new technologies, manufacturing managers—especially those in the electronics and mechanical equipment (machinery) industries—are quietly waging a different battle: the battle to conquer overhead costs. Indeed, our research shows that overhead costs rank behind only quality and getting new products out on schedule as a primary concern of manufacturing executives.
The reason for this concern is obvious: high manufacturing overhead has a dramatic effect on profit and competitiveness, and manufacturing managers believe themselves to be poorly equipped to manage these costs well. As one senior executive told us,
‘‘We’ve been brought up to manage in a world where burden rates [the ratios of overhead costs to direct labor costs] are 100% to 200% or so. But now some of our plants are running with burden rates of over
1,000%. We don’t even know what that means!’’
Mr. Miller, currently a visiting professor at Stanford Graduate
School of Business, is professor of operations management at the
Boston University School of Management and director of BU’s
Manufacturing Roundtable, the sponsoring organization for the
Manufacturing Futures Project. He is the author of several HBR articles, including ‘‘Fit Production Systems to the Task’’ (January–February 1981).
Mr. Vollmann, formerly on the faculties of both INSEAD and
IMEDE, is professor of operations management at the Boston
University School of Management and chairman of the operations management department. He is coauthor (with
Jeffrey G. Miller and Thomas E. Vollmann
Harvard Business Review
No. 85510
This document is authorized for use only by Christopher Bourbeau (cebourbe@illinois.edu). Copying or posting is an infringement of copyright. Please contact customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
HBR
SEPTEMBER–OCTOBER 1985
The Hidden Factory
Jeffrey G. Miller and Thomas E. Vollmann
While the world’s attention is focused on the fight to increase productivity and develop new technologies, manufacturing managers—especially those in the electronics and mechanical equipment (machinery) industries—are quietly waging a different battle: the battle to conquer overhead costs. Indeed, our research shows that overhead costs rank behind only quality and getting new products out on schedule as a primary concern of manufacturing executives.
The reason for this concern is obvious: high manufacturing overhead has a dramatic effect on profit and competitiveness, and manufacturing managers believe themselves to be poorly equipped to manage these costs well. As one senior executive told us,
‘‘We’ve been brought up to manage in a world where burden rates [the ratios of overhead costs to direct labor costs] are 100% to 200% or so. But now some of our plants are running with burden rates of over
1,000%. We don’t even know what that means!’’
Mr. Miller, currently a visiting professor at Stanford Graduate
School of Business, is professor of operations management at the
Boston University School of Management and director of BU’s
Manufacturing Roundtable, the sponsoring organization for the
Manufacturing Futures Project. He is the author of several HBR articles, including ‘‘Fit Production Systems to the Task’’ (January–February 1981).
Mr. Vollmann, formerly on the faculties of both INSEAD and
IMEDE, is professor of operations management at the Boston
University School of Management and chairman of the operations management department. He is coauthor (with