Article ID: | iaor1990970 |
Country: | United States |
Volume: | 7 |
Issue: | 1/2 |
Start Page Number: | 121 |
End Page Number: | 137 |
Publication Date: | Oct 1987 |
Journal: | Journal of Operations Management |
Authors: | Raffi Farshad, Swamidass Paul M. |
Manufacturing overhead cost (MOHC) in an average U.S. manufacturing firm is about two and one half times the direct labour cost, yet it has not received much attention from researchers. In an attempt to understand and explain MOHC behaviour, this study proposes a conceptual model of MOHCs. The model visualizes MOHC to be a function of a hierarchy of variables. In the proposed hierarchy, industry type is the most important determinant of MOHC followed by order-filling method, strategy variables, and operational variables, in that order. The higher the level of the variable, the greater its impact on MOHCs. To validate the model, four propositions concerning MOHCs derived from the model were subjected to statistical tests using the data collected from hundreds of manufacturers who participated in the 1983 North American Futures Survey. Given the state of our understanding, it is unclear why some industries are more sensitive to strategic decisions than others. More studies are needed to identify the factors that make certain industries relatively more sensitive to selected strategic decisons.