Bert Moore

This may not be news to some of you – and that's a frightening thought – but the battle for American competitiveness may be lost because of accounting practices.

Here's a real example: a manufacturer has several production and assembly locations for a single product line. Components are received at one location, inspected, made into subassemblies, repacked, put into corrugated shipping cartons, and shipped to another location for final assembly. Along the way, packaging material, packing trays and corrugated containers are discarded.

The company's logistics engineers asked: "why not use returnable containers and shipping trays that could also hold components during subassembly or manufacturing?" It was an interesting idea but didn't became a "front burner" issue until the contractor who had been hauling away the discarded packaging material for free began charging for the service because the bottom had fallen out of the recycling market.

Returnable/reusable containers to the rescue, right? Wrong.

At every step of the process, the operations managers insisted that they couldn't take that kind of "hit" on their budgets. Returnable containers could save a lot of money, they agreed, but they would be a capital expense. Packaging costs, on the other hand, were included in the cost of the product. In other words, these costs could be considered part of the cost of doing business and hidden in the accounting process.

Accounting=1, Competitiveness=0.

Why all this emphasis on packaging? Because it's an effective example of how we need to think about the cost of doing business and how we look at budgets.

One consultant in the bar code industry insists that automation isn't a capital expense - it's a cost of doing business.

"Do you cost-justify a phone system or fax machine?" he asks. "No," he says, "they're considered necessary business expenses. Why, then, cost-justify other systems with proven abilities to save money, increase speed and accuracy, and improve productivity?"

This cost-of-doing-business view provides a streamlined approach to some project justifications by asking one simple question: "Can we afford not to implement a new system?"

Demming, the productivity guru, poses another, very good question.

"Why do we set quotas for individuals when we want to improve the performance of the company?" [Emphasis added.]

Individuals concerned with personal quotas can't afford to sacrifice their time to work on new or unbudgeted projects - even if they might benefit the company significantly. Demming insists that corporate priorities should be set which encourage cooperation and corporate improvement.

Similarly, a percentage of the corporate budget should be earmarked specifically for projects which will improve productivity, increase competitiveness or reduce waste so that individual departments don't have to take the "hit."

A cost-of-doing-business attitude and a corporate productivity improvement budget might finally allow engineers and managers to put their efforts into evaluating solutions rather than simply trying to justifying them.

And that could be a significant productivity improvement all by itself.