Hidden Factory

To reduce high manufacturing overhead, companies should look beyond their direct labor and materials costs to the costs of transactions. These transactions are the exchanges of materials and/or information that are necessary to move production along. They do not directly result in physical products but instead in a kind of "augmented product" that the customer buys--on-time delivery, quality, variety, and design improvement. Three approaches to managing the costs of these transactions are to analyze which transactions are necessary and improve the methods of carrying them out, to increase the stability of operations, and to rely on automation and systems integration.