Part proliferation: role for activity-based costing An article in The Wall Street Journal Qune 23, 1993) reported on the major changes occurring in General Motors. Its new CEO, John Smith, had been installed after the board of directors requested the resignation of Robert Stempel, the previous CEO.

(John Smith's) North American Strategy Board identified 30 components that could be simplified for 1994 models. GM had 64 different versions of the cruise control/turn signal mechanism. It planned to pare that to 24 versions the next year, and the following year to just 8. The tooling for each one cost GM's A.C. Rochester division about $250,000. Smith said, "We've been talking about too many parts doing the same job for 25 years but we weren't focused on it." [Note that the tooling cost is only one component of the cost of proliferating components. Other costs include the design and engineering costs for each dif¬ ferent component, purchasing costs, setup and scheduling costs, plus the stock¬ ing and service costs for every individual component in each automobile dealership (including Beck Motors) around the country.]

GM's proliferation of parts was mind-boggling. GM made or bought 139 different hood hinges, compared with 1 for Ford. . . . Saginaw's Plant Six jug¬ gled parts for 167 different steering columns—down from 250 the previous year but still far from the goal of fewer than 40 by decade's end.

This approach increased GM's costs exponentially. Not only did the company pay far more engineers than competitors to design steering columns, but it also needed extra tools and extra people to move parts around, and it suffered from quality glitches when workers confused one steering column with another.

REQUIRED

(a) How could an inaccurate and distorted product costing system have con¬ tributed to the overproliferation of parts and components at General Motors?

(b) What characteristics should a new cost system have that would enable it to signal accurately to product designers and market researchers about the cost of customization and variety?

(LO 4, 5)