IJOPM
15,3
16
Managers’ perceptions of the
importance of supply,
overhead and operating costs
Colin G. Armistead
Dorset Business School, Bournemouth University, Bournemouth,
Dorset, UK,
Cliff Bowman and Julia Newton
Cranfield School of Management, Cranfield University, Bedford, UK
Introduction
Management researchers and managers might have an intuitive view of the
relative importance of costs of supply, operating costs and overhead costs.
However in changing environments for businesses things might not be so
simple. This article takes a fresh look at the way in which managers from differ-
ent types of firms perceive the relative importance of the three costs. The firms
are representative of professional services, financial services, retail distribution
and manufacturing. The perception by managers of the relative importance of
costs may be determined by the nature of the business, the operational focus
(which will be influenced by competitive strategy) and the opportunities for
their control. This article examines the existing literature for indications of the
importance which is attached to the three types of costs in the four business
sectors. The hypotheses which are developed are tested using a research
instrument for assessing the perception of managers of the current competitive
strategic posture of their business. The results show that managers have more
discretion over the control of operational costs, without challenging the recipe
for the industry, where they represent a high proportion of the three types.
Where supply and overhead costs form a high proportion of the total costs
managers can exercise discretion by challenging the existing industry recipes
through restructuring their operations.
An operational taxonomy for service and manufacturing firms
The operations management and service management literature contains a
number of paradigms which are relevant to the examination of costs. The diver-
gence between service and manufacturing is at the simplest level expressed on
a service to manufacturing continuum[1] with firms identified according to
their productive output being either goods alone, or pure service or a mix of
goods and services.
Service is defined for these purposes as an intangible output with no physical
aspect. While this is a somewhat simplistic view of either manufacturing or ser-
vice production it does allow a separation of firms into different categories.
Received June 1993
Revised February 1994
International Journal of Operations
& Production Management, Vol. 15
No. 3, 1995, pp. 16-28. © MCB
University Press, 0144-3577