Part proliferation: role for activity based costing An article in the Wall Street Journal by Neal Templin and Joseph B. White (June 23, 1993) reported on the major changes occuring at General Motors (GM). Its new chief executive officer, John Smith, had been installed after the board of directors requested the resignation of Robert Stempel, the previous chief. Smith's North American Strategy Board identified 30 components that could be simplidied for 1994 models. GM had 64 different versions of the cruise control/ turn signal mechanism. It planned to reduce that to 24 versions the next year, and the following year to just 8. The tooling for each one costs 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 different components, purchasing costs, setup and scheduling costs, plus the stocking and service costs for every individual component in each GM dealership around the US). GM's proliferation of parts was mind boggling, GM made or bought over 139 different hood hinges, compared with one for Ford. Saginaw's Plant Six joggled 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 exponetially. Not only did the company pay far more engineers than competitors did to design steering colomns, but it also need extra tools and extra people to move parts around, and it suffered from quality glitches when workers confused one steering column with another.

Requirements: In 500 words or more explain A. How could an inaccurrate and distorted product costing system contribute to the overproliferations of parts and components at General Motors? and B. What charactoristics 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? Please cite or list references used to receive the information.