Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

The Price of Managerial Neglect

10.04.2006


What does it cost a company when a manager neglects to improve a supply-chain or other manufacturing process over a three-year period? According to conventional management wisdom, such sins of omission are commonplace but difficult, if not impossible, to quantify in dollars and cents.



Until now.

A new method for putting a price tag on the cost of "managerial neglect" has been developed by two industrial engineers in the University at Buffalo School of Engineering Applied Sciences. The method, and how it would be applied to a two-stage supply chain, is described in the current issue of "The Engineering Economist."


"Our method can be used for any process that has variability, like a multi-stage supply chain, manufacturing process or a quality-improvement project," explains Alfred Guiffrida, Ph.D., UB adjunct instructor of industrial and systems engineering, who developed the method with Rakesh Nagi, Ph.D., UB professor of industrial and systems engineering.

"Management theory says to improve a process you have to first improve its variability. Well, we’ve developed a way to put a price tag on the expected costs of failing to improve variability, for failing to improve a process," Guiffrida says.

Adds Nagi, "In this context, managerial neglect is something that a manager should be doing, but is not doing, and it’s costing the company something. It’s seldom that managerial neglect is quantified in financial terms."

The method, which the UB engineers say can be used with an Excel spreadsheet, finds the net present value of improvements that could be done over a period of time, but are not done. The method factors in the learning rate of a process, which is the rate by which a process would improve naturally, without intervention, through repetition.

The cost of managerial neglect is found by calculating the difference between learning-rate returns and the cost of not making improvements over time. In the example of a hypothetical two-stage supply chain (from manufacturer to customer) the UB engineers showed that managerial neglect over a three-year period would double costs incurred from untimely delivery of goods, inventory holding, production stoppage or other inefficiency.

"In other words, if a manager does intervene to improve the supply chain the company over three years would save 50 percent in costs incurred by inefficiencies in the supply chain," Nagi says.

Their managerial-neglect model could be used by managers to make the case for capital expenditures needed to improve a company’s processes, Guiffrida and Nagi say.

"Our model is easily applicable to the real world," Guiffrida says. "Managers could use it to get the attention of upper management, to show them in quantifiable terms the costs you incur unnecessarily for failing to make improvements."

Adds Nagi, "Companies should be willing to invest the expected cost of managerial neglect because they are going to incur the cost through poor performance of the process, anyway. This will help middle managers justify investments needed for improvement."

The University at Buffalo is a premier research-intensive public university, the largest and most comprehensive campus in the State University of New York.

John Della Contrada | EurekAlert!
Further information:
http://www.buffalo.edu

More articles from Business and Finance:

nachricht Preferential trade agreements enhance global trade at the expense of its resilience
17.02.2017 | International Institute for Applied Systems Analysis (IIASA)

nachricht How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Safe glide at total engine failure with ELA-inside

On January 15, 2009, Chesley B. Sullenberger was celebrated world-wide: after the two engines had failed due to bird strike, he and his flight crew succeeded after a glide flight with an Airbus A320 in ditching on the Hudson River. All 155 people on board were saved.

On January 15, 2009, Chesley B. Sullenberger was celebrated world-wide: after the two engines had failed due to bird strike, he and his flight crew succeeded...

Im Focus: Breakthrough with a chain of gold atoms

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

Im Focus: DNA repair: a new letter in the cell alphabet

Results reveal how discoveries may be hidden in scientific “blind spots”

Cells need to repair damaged DNA in our genes to prevent the development of cancer and other diseases. Our cells therefore activate and send “repair-proteins”...

Im Focus: Dresdner scientists print tomorrow’s world

The Fraunhofer IWS Dresden and Technische Universität Dresden inaugurated their jointly operated Center for Additive Manufacturing Dresden (AMCD) with a festive ceremony on February 7, 2017. Scientists from various disciplines perform research on materials, additive manufacturing processes and innovative technologies, which build up components in a layer by layer process. This technology opens up new horizons for component design and combinations of functions. For example during fabrication, electrical conductors and sensors are already able to be additively manufactured into components. They provide information about stress conditions of a product during operation.

The 3D-printing technology, or additive manufacturing as it is often called, has long made the step out of scientific research laboratories into industrial...

Im Focus: Mimicking nature's cellular architectures via 3-D printing

Research offers new level of control over the structure of 3-D printed materials

Nature does amazing things with limited design materials. Grass, for example, can support its own weight, resist strong wind loads, and recover after being...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Booth and panel discussion – The Lindau Nobel Laureate Meetings at the AAAS 2017 Annual Meeting

13.02.2017 | Event News

Complex Loading versus Hidden Reserves

10.02.2017 | Event News

International Conference on Crystal Growth in Freiburg

09.02.2017 | Event News

 
Latest News

New pop-up strategy inspired by cuts, not folds

27.02.2017 | Materials Sciences

Sandia uses confined nanoparticles to improve hydrogen storage materials performance

27.02.2017 | Interdisciplinary Research

Decoding the genome's cryptic language

27.02.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>