Archive for the ‘Capacity’ Category


Capacity Model: Stick To One Model for Effective Management Decisions

In a recent professional forum, a discussion about cost allocation evolved to a discussion of capacity. Some participants proposed having two or even three different capacity models to answer different requirements such as management, costing, or regulatory reporting. Having served on the team that developed the CAM-I Capacity Model, I had to disagree. Two, or […]

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Dynamic Business Modeling for Management Decision Making

Modern computer technology gives us the ability to model our businesses in computer software. These models enable us to view, understand and explore relationships that would otherwise be unknown or unclear. A variety of modeling techniques enables a range of possible results but also requires a range of work effort to create and maintain a […]

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Teams Have Responsibility for Idle Capacity

Years ago, I joined an established semiconductor firm. The firm was constructing a new manufacturing facility. In the industry, this is a wafer fab in which to make electronic circuits on silicon wafers. Wafer manufacturing facilities are enormously expensive. The decision to build the facility was made when times were good and wafer manufacturing capacity […]

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Idle Capacity: Boiled Alive by Cost Management

When conditions gradually change, we often fail to recognize the magnitude and consequences of the change. Consequently, we also fail to take action appropriate to the change. Just as a frog swimming in a pot of cool water over a fire, fails to recognize the gradual warming until it is too late, we continue with […]

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Beware the Business Death Spiral

Today’s economic environment is constantly changing. While a lot of press is devoted to the global recession, reality is that the competitive environment for any business is constantly changing. Even within the business’s product portfolio, products are at different points in their life cycle. With product life cycles constantly and dramatically shortening, how do managers […]

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The Hidden Trap of Marginal Costing

Back in business school, my professor presented us with a case study. The core question of the case was whether to take an order where the price was at a significant discount from normal pricing and less than the full cost of the product. Of course the natural conclusion was to refuse the order. Why? […]

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Activity-Based Cost: Blocking and Tackling First

Over the past two decades, Activity-Based Cost has grown from an obscure almost novelty costing methodology to a commonly accepted cost management methodology. One evidence of this is the plethora of supposedly new variations. Most of these variations result from marketing efforts to distinguish one software or consulting provider from the pack. Yet, the common […]

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Grasping for Profit

Some years ago as a young cost accountant, I was sitting in a meeting when the Vice-President of Sales announced that we needed to establish a multi-million dollar reserve and exit one of our major product lines. Of course, this came as quite a shock.

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Stop Arguing About Practical Capacity

A few years ago, I participated in a research group to study capacity. At first, we spent a lot of time trying to define what seemed to be basic capacity terminology such as “Theoretical” capacity and “Practical” capacity. The discussion went this way and that way depending on the power of the last presentation. We […]

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