What Drives Costs? The Power of Cost Transparency

Manufacturing costs, top management consulting firms

Image courtesy BCG

When the same product costs more to make at one plant than at another, the difference can be explained by the underlying cost drivers. Plants have three categories of cost driver:

  • Scale: the effect of volume on cost per unit made
  • Efficiency: relative productivity, utilization, and process complexity
  • Factor costs: input costs (such as labor), operating costs (such as fuel), and logistics costs (such as shipping)

A company’s specific cost drivers should be customized on the basis of industry and types of production. A detailed analysis reveals the most relevant cost drivers and the relative effect of each. As shown in the exhibit below, a plant’s cost per unit of production goes up or down depending on the interplay of drivers such as yearly production volume (scale), equipment utilization rates (a measure of efficiency), and local labor rates (a factor cost). Armed with this information, companies can make better decisions about how to structure the optimal manufacturing network.

via bcg.perspectives – What Drives Costs?.

Need leadership training at your organization? Please click here to complete our form at our website. Thank you.

Jim Woods teaches CEO’s how to get the most out of their people and their organizations.

Hire Jim Woods, speakers, leadership, consultant, hr, innovationJim is president of InnoThink Group and Leadership Matters.  He is a leader in workplace learning, productivity, performance, and leadership training solutions. For over 25 years, we have helped companies improve their performance, productivity, and bottom-line results.

Contact us See a partial list of Jim’s clients. Click here to Hire Jim Woods to Speak  | Follow us: Facebook | Follow us: Twitter | Skype ID – jim.woods79 http://www.innothinkgroup.com

 

About

Jim Woods is president of The Jim Woods Group. A management consulting firm. Go here to see his work www.jimwoodsgroup.com. He advises and speaks to organizations large and small on how to increase top line growth in times of uncertainty and complexity. Some of his speaking and consulting clients include: U.S. Army, MITRE Corporation, Pitney Bowes, Whirlpool, and 3M. See more at his website www.jimwoodsgroup.com.

Tagged with: , , , , , ,
Posted in Strategy

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: