In the spirit of Halloween, I wanted to discuss the scary side of should-cost models – visibility and accountability.
The clarifying discipline of should-cost models brings visibility to the corruption that can be hidden in a products’ cost structure. This visibility can be terrifying to the people who buried problems or inflated costs. I have uncovered inflated costs from negligence and deliberate acts in my experience developing and examining should-cost models. For example,
- Exaggerating the number of people tending machines (I’ve seen as many as six “ghosts” charged to a robotic machine),
- Inflating material used,
- Creating phantom parts,
- Manipulating specifications,
- Overstating CNC machine time,
- Adding process steps that do not exist, and
- Hiding cost inflating factors deep within formulas,
A few of the reasons these things occur include:
- Unethical actors add costs to make it easier for them to negotiate a price.
- Problems grow over time because no one is appropriately challenging the cost structure.
- Management forces waste into the cost structure by demanding a 6% annual cost reduction. In this case, a frustrated employee may add cost so that the 6% can be removed each year, giving a false illusion of savings.
Should-cost models bring light to these issues so the waste can be eliminated. They provide accountability for the cost structure that should be attained through cooperative work with a supplier. Visibility and accountability are potent tools for achieving sustainable competitive advantages.
It is always an exciting experience to work with people who see the value of a should-cost process and catch the vision of sustainable cost optimization.
Artwork curtesy of susanmortensen.com
