|
||
| Volume 3, Issue 9 - September, 2004 • The Overhead is Killing US! There are lots of things in this world that irritate me just as I am certain that there are lots of things that irritate you. Lately, however, I have a recurring irritant that keeps growing in my mind and keeps popping up in all aspects of my life. That irritant is overhead. Overhead to me includes the extraneous costs associated with an endeavor beyond the basics, i.e. labor and materials. Unless you are working in exotic materials or high labor crafts, my guess is that overhead is the largest expense item on your income statement. It may be hidden in some different accounts, but when looked at in total, I am pretty sure that it will be the largest expenditure facing most organizations. I have worked in a number of different and varied manufacturing environments and have always been amazed to find overhead charges at 300% of the labor costs or more. In the not too distant past, employers used to pick up all of the cost of an employee’s health insurance, but as the cost of insurance went up, so did the overhead cost for the employer and the move to have employees pick up part of the cost is nothing more than an attempt to keep overhead costs in line. Labor costs normally run at 10% to 20% of the cost of the product. That means the overhead costs are 30% to 60% of the cost of the product. As a manufacturer trying to compete with less expensive products being produced in lower overhead areas, it is readily apparent that there is much more opportunity to reduce the cost of a product by looking at the overhead costs as compared to the labor costs. There are plenty of examples of where this has happened. Countries with high social costs like Germany have been forced to move production to lower cost countries in an effort to remain competitive. Our media is constantly bringing us examples of businesses moving to Mexico, China and India. Another great example is the exodus of business from California prior to the election of Arnold as governor. Sadly, our media and our politicians are more inclined to blame companies for moving offshore because of lower labor costs when the truth is businesses can lower product or service cost much more from reducing overhead than they can from reducing labor costs. The reason our politicians aren’t talking about overhead is that to a large extent, they are the ones who have created the high overheads and they are unwilling to do anything about it. Government mandated minimum wage, benefit packages, OSHA, EPA, HIPPA, Social Security, Medicare, Workers Comp, Property Taxes, lack of Tort reform, etc., etc., etc. These are just a few examples of the overhead costs imposed on organizations by government. While it may not be possible to reduce or eliminate these overhead burdens, maybe there should be some offsetting help provided like accelerated depreciation for new equipment and systems that will keep our businesses current with the latest technology. Maybe we should consider making profits on products produced here but sold overseas be tax-free thereby encouraging domestic production rather than discouraging it and forcing domestic companies to set up off shore holding companies. This is not the exclusive problem of the manufacturing world. My wife is a health care professional and we are regularly witnessing an exodus of medical people to states that have enacted some kind of tort reform. It is not unusual to hear from some of these good doctors that their malpractice insurance is costing them over $250,000 per year leaving them with much less in take home pay. Recently, it dawned on me that I am having similar problems in my own personal life. When we left Pennsylvania in 1997, I had been trying to get my property taxes lowered, as they were outrageous for the house I was living in. There were lots of homes for sale in our community and I noticed more and more people moving outside of town and buying or building in the townships where the taxes were lower. When we built in Ohio, I decided to live outside of Cuyahoga County so that I wouldn’t have to pay for the Cleveland baseball and football
stadiums in my property taxes. Little did I know that the community I built in never saw a tax increase they didn’t like. Today, my property
taxes are running at a rate that requires a pretax income of $12,000 just to pay the property taxes. My neighbors have just sold their house and
are moving to one that will require $24,000 in pretax income just to pay the property taxes. Whether it is a California company, a medical doctor or an individual homeowner moving to another area / state, or a German or American company moving production offshore, people and organizations are realizing and reacting to the overhead problem. I wonder if and when our city, state and federal governments will wake up to the overhead problem and what they will do about it when they do wake up? • Congratulations to Laura Ashley! Laura Ashley USA is a great company with tremendous name recognition. I had the pleasure of working with them last year. They are incredibly hospitable
people and it was a real joy presenting a workshop about the Product Life Cycle. I just recently learned that for the year 2003, they exceeded their
goal by 30%. Congratulations on a job well done. Beating an objective by 30% is impressive any time, but 2003 was not an easy year for most companies,
which makes your accomplishment doubly impressive. • Taking Aim Blog If you have a subject that you would like to see covered in future issues of “Taking Aim,” please send me an email at aim@CannonAdvantage.com.
|
Robert E. Cannon "Best Practice" Sales Force
Development Change Management Customer Service Assessment for ISO Requirements Smart Thoughts from Smart People – "Some tension is necessary for the soul to grow, and we can put that tension to good use. We can look for every opportunity to give and receive love, to appreciate nature, to heal our wounds and the wounds of others, to forgive, and to serve." Joan Borysenko
Unknown
“Women and cats will do as they please, and men and dogs should relax and get used to the idea.” Robert A. Heinlein
"A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort." Herm Albright
Taking Aim © 2004 Bob Cannon, The Cannon Advantage Newsletter. All Rights Reserved. The Cannon Advantage visual branding by Zarney Creative. For contact information, click “Resources.” |
|
