Reducing overhead is a countercyclical activity in some firms, imposed by customers in other firms, and for lean companies, often a late station on the lean journey.
All of the members who joined us for our SIG on Overhead Reduction have been in situations where overhead reduction is a primary and urgent concern, but all were currently in the position of expanding their operations. As one member wryly remarked, “When sales offset overhead during an expansion, overhead is not discussed.” The most attention that is paid is to make sure that the overhead percentages stay in the target range.
Inquisitive customers can raise the heat in some industries, however. In the automotive sector it is not unusual for customers to request SG&A (selling, general & administrative) expenses from their suppliers to an extremely detailed degree. For other members the pressure to reduce overhead comes from the market price of the goods they produce.
Most of the expansion that members’ were investing in was production capacity as a result of increased sales. However, one member was considering adding an entire design and engineering department to be able to go after certain contracts. This led to a discussion of staff-related overhead calculations and the types of metrics used to determine the performance of indirect labour.
Thanks very much to our hosts at Schukra and to the EMC members who joined us, for contributing to lively discussions.
If you find these abbreviated notes intriguing, be sure to sign up early for future SIGs so you can take part in the discussions and get all the details.