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Teaching Employees to Understand Costs

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Question: "I run a big assembly plant, and it's hard for the employees to see a connection between the plant's P&L and what they do on the job. How can I help them learn to think like businesspeople?"

Answer: "I'm a financial advisor to the 32-inch line here, which produces all of Sony's 32-inch CRTs worldwide. There are four main processes in making a tube, and we took each process and turned it into a business center.

"Now, each process team sells its work-in-process to the next team. Any rejects that are found in other areas are rebated back, so we developed a reject/rebate system to keep track of that. Everything is tracked every day, which lets us develop a daily P&L for every process. We can't know allthe expenses exactly, of course, but we use an average of the last six months. It's pretty accurate. All this information goes on our Intranet system, so they know how they're doing all the time.

"The most important thing we've done so far is to break down certain costs by the hour. One of our biggest problems is shut-down time, and our people didn't really understand how much money an hour down actually costs. So we told them: `The opportunity cost per hour is X; the idle labor andoverhead per hour is Y. Do the math, and you'll see that it costs you Z when you're not running.'

"Well, they got it. And then you know what they did? They went back to figure out the cost of downtime -- the cost of greasing this or fixing that -- by the MINUTE! More than anything else we've done so far, this simple exercise got people to think about the cost of shutdown, which is a really important number for any plant. --Dirk Macfarlane, Sony Display Tube Co., in San Diego.

Copyright 1998 Open-Book Management Inc.

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