Managing Costs Causes Costs to Rise

Managing Costs Causes Costs to Rise

[From the Archive: Originally posted at Jul 10, 2011]

In case anyone wants more detail on why this is so. A handy reminder.

Amplify ’d from

Managing costs causes costs

Before we explore how managing costs causes costs in service organisations, we need to consider an important advance in manufacturing, where this counterintuitive truth was first discovered. Taiichi Ohno was the man who developed the Toyota Production System: a system designed to make vehicles not at the rate the machines demanded in order to achieve economies of scale, but at the rate of customer demand. He took Ford’s ideas a massive leap further. While Ford was concerned with unit cost, Ohno concentrated on total cost. He took the view that cost was in flow – how smoothly and economically the parts were brought together in the final assembly – not just the aggregation of unit costs. How long the part is in the system is also part of its real cost. So Ohno’s factory had parts delivered to the manufacturing line at the rate the line required them – ‘pulled’ in his language (by kanban or ‘just-in-time’).


– Bob

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