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$50 Menus : ICMS – Success is NOT Logical
$50 Menus
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9 August 2013 - 23:22, by , in Customer Profitability Analysis, No comments

The $50 menus are back on American Airlines. Menus that were eliminated five years ago are now back. Probably because airline management does not know what it cost to get a menu in the hands of the customer.

I recently used some of my 3 million air miles to upgrade to first class. As we approached cruising altitude the flight attendant handed me a menu. It listed two salad dressings and three entree offerings. I noted that the alternatives were the same as all my previous non-menu flights. I also noticed that by the time the flight attendant got to the back row, only one entrée option remained…. chicken. The menu results in more customer dis-satisfaction than pleasure.

By my estimates, it costs $50 to put a menu in my hands. Looks can be deceiving. One would not think that a single piece of paper would cost $50. But when you add up all the activities it takes to get a menu in my hands on an airplane, $50 may be a conservative estimate e.g. Design Menu, Meet on Menu, Request Printing Proposals, Select a Supplier, Issue Purchase Order, Print Menu, Receive Menu, Inspect Menu, Pay for Menu, Store Menu, Schedule Menu Picks, Pick Menu from Warehouse, Package Menu for Meal Cart, and Handout Menu.

Do you have any $50 menus in your organization?   Things that at first glance appear to be inexpensive but are in fact just the opposite. Activity Based Cost (ABC) systems often expose expensive activities, services and outputs that are overlooked by managers and traditional cost systems. For example, many of the organizations that have implemented ABC have found the following activities to be very expensive:

  • Issue Monthly Closing Report… This report is not just an activity, it’s an entire business process in most companies. ABC often shows that this report cost thousands of dollars to prepare. Many managers question whether they get value equal to the report cost.
  • Attend Meetings… It is not uncommon to find that the cumulative cost of this activity across all departments makes it one of the Top 10 most expensive activities in many organizations. Is there any output from your meetings?
  • Wait… Inactivity consumes as much cost as activity. Idle people and machines are wasted resources and represent excess capacity. Excess capacity is the largest non-value added cost in most organizations. What would your product or service cost if you minimized excess capacity? ABC can answer that question.

What activities, products or services should you unplug this year?   Everyone has limited time and resources.  Curtailing or reducing specific activities will free up valuable time and budget that can be used in three ways:

  • Give some. Re-deploy the time and budget for activities, products or services that have been begging for more resources.
  • Keep some. Let the savings fall to the bottom line as increased profit.
  • Save some. We all can use more financial and time margin in our lives. Margin = Your Limit (-) Your Load. Keep some of the time and money from the unplugged activities to move your margin from a negative to a positive.

Epilogue: On a flight last night, I was offered the same entrees with no menu. When I asked the flight attendant “Has the company gotten smart and eliminated the menus again?” her response was “No, catering did not give me enough menus for every person, so I threw them all away.” Add another non-value activity to the list: “Fill Out Missing Menu Report”!

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