Solving Manufacturing Costing Obstacles: Complex or Simplified

Nov 20, 2015

A few months ago I was having breakfast with the CFO of a major manufacturing company in Northwest Ohio and we talked about the cost and financial issues faced by his organization. As he described some of the more recent issues, it became clear the biggest obstacle was related to individual job costing. In addition, there were concerns regarding the international pressures exerted by competitors from foreign countries. In order to remain competitive in a world market, it was essential to minimize costs. As we discussed these issues in greater detail, it was evident there were additional underlying issues which required attention to ensure the company’s competitiveness.

During our conversation, he asked, “aren’t most business problems today simple math problems?” As I thought about his statement, I must agree.

Many business issues involve some kind of a math problem. Some of these problems are very simple and can be solved with a straightforward mathematical technique. However, some obstacles may be quite complex and require multiple mathematical techniques or some extremely sophisticated method to both understand the issue and then form a solution. I am constantly amazed by how quickly businesses attempt to oversimplify issues in an attempt to reason a solution or approach for dealing with the issues that are easy-to-understand. Do not get me wrong, an understandable solution is very important, but not to the point that it is unusable.

I am often reminded the first solution may not be the best or lead to expected outcomes. A business’s ability to correctly identify the challenges they are facing and then to grasp all of the implications of those challenges, both positive and negative, is critical. Often times a solution cannot be determined without fully understanding the problem at hand. Solutions require structure in such a way that all of the considerations, again both positive and negative, are considered which frequently leads to a successful conclusion.

It is often the quick, unstructured course of action that does not identify or consider all of the possibilities that will most frequently lead to an unsuccessful result. I have worked on models in the past that included dozens of moving factors with varying elements of impact on the end goal. A business manager’s ability to identify and quantify those factors dramatically affect the development of a solution. I do not mean to over simplify and say all business problems today can be reduced to mathematical terms; however, there are significant benefits for solutions to problems that are mathematically based that clearly outweigh non-mathematical based courses of action.

Many personnel, management, and leadership predicaments must be resolved with the consideration of personality traits. A mathematician would argue you can build some variable into a formula for emotion, but I think using real emotion to determine how to deal with emotion tends to be best. These  represent a large number of the issues American businesses are dealing with today and certainly do not lend themselves to mathematical solutions. However, many of the financial problems businesses face today with regard to price reductions, sales volumes, profitability by product line, could be solved in mathematically based manners. Far better outcomes can be obtained if the team analyzing the issues can seek out mathematical solutions which are all-encompassing and correctly structured.

Have you ever thought about problems from a mathematical point of view? If so what have you done? If not, will you start now?

Categories: Cost Accounting