Considering Product Activation? You Need to Think About These 10 Issues

Product activation is a popular approach for securing software licenses. However, software developers need to consider all the requirements for a capable activation system, from the license models they’ll need to support to how they’ll deal with the corner-case customer environments.

The basic activation process is typically as follows. Upon purchase the software vendor sends a unique product serial number to the user. When the user installs the application they are prompted to enter their product serial number. Their application connects to the vendor’s hosted license server over the Internet to confirm that this product serial number is valid and has not already been used to activate a license. It also obtains from the license server the license limits that apply to that user’s license, such as a time limit or enabling of product features. Finally it locks the license to the user’s system by reading certain machine parameters, such as the MAC address or hard disk ID, and encrypts the license limit and locking information in a file which is saved on the user’s system. Once activated the application interrogates that local encrypted file to perform its license check, so continues working on that user’s specific machine within the defined license limits with no further communication required with the vendor’s systems.

Sounds simple enough… but here are the ten areas you need to consider as you select a product activation system.

License models

What are the license models you wish to offer across your target markets? Are there other models Marketing might want to offer next year? Here are some possibilities:

* Time-limited licenses, for trials or subscription licensing
* Feature-enabling, to offer different price points or to package your product for different verticals e.g. a customer’s license might have Feature A to be OFF, Feature B at the Pro level, Feature C at level 5, Feature D on a 30-day trial and so on.
* Usage-based licensing. This could be metered (where the usage is tracked for subsequent reporting and billing, but not limited) or debiting (where the user purchases a usage quota which is depleted as the application is used).
* Custom licensing. Maybe you need to communicate some licensing parameters to your application, such as the Terabytes of data to address, number of communication channels to support, number of pages open at any one time and so forth.
* Some combination of the above e.g. enabling each feature with its own usage and time limit.

Disconnected systems

Not all computers have an Internet connection, so you need to consider how you will support your users who are on isolated corporate networks, or just can’t get a network connection from their laptop. The whole point of product activation is automation and convenience – you don’t want to have to set up phone support (during working hours, 24×7?, multi-lingual?) to help people without a network connection. Luckily, there are some solutions… if you pick the right system. For example:

* User self-service activation. Does the activation system provide a way for users to activate licenses on disconnected systems? A common approach is for the licensing software, when it finds it can’t connect to the hosted license, to encrypt the locking and product serial number information in a file, which the user then hand-carries to any web browser for upload to the vendor’s self-service web page. The vendor’s system accepts the file, checks it, and returns the encrypted file needed to enable the license. This file exchange can also be done by email, or even snail mail.
* Proxy server support. In many sectors such finance, mil/aero and government, users’ systems don’t have a direct connection to the Internet but can access it via an HTTP proxy server. Can your applications access your hosted license server via an existing HTTP proxy server?
* Install your own proxy server. If there isn’t a suitable HTTP proxy server available, does the activation solution include its own proxy server for installation on the customer’s network?

Security

The idea is to protect your applications from hacking and ‘honest abuse’ (over-subscription by legitimate customers), so you need robust security. Here are some questions to consider:

* If you issue time-limited licenses for trials or subscriptions, is there protection against users who try to extend their license by turning back their system clock?
* Is there protection against users who try to hack or spoof the licensing library built into your application?
* Is the communication between the licensed application and the license server secure against man-in-the-middle attacks, replay attacks, and counterfeit attacks?
* If you are tracking license limit data locally for each user, are these records secure against hacking and rollback to prior versions?
* Can no-one else set up a license server and issue licenses for your product?

Node-locking

The general approach to preventing a license from simply being copied onto another system is to lock each license to your desired parameters of the target system, such as the MAC address, host ID, hard disk ID and so on.

So far so good, but here are some node-locking questions to ask:

* Is the node-locking mechanism flexible and extensible, so you can lock to the parameters you wish?
* Does the node-locking mechanism follow generally-accepted computer science principles, and not do such tricks as bypassing the operating system, with all its unforeseeable consequences (such as breaking just because the user installed a boot manager, or upgraded their operating system)?
* Can you secure licenses on virtualized systems (e.g. VMWare), where the hardware parameters can legitimately change for a licensed user? How about supporting users who run Windows on a Mac?
* If you want, can the node-locking mechanism provide resiliency against small changes, so not inconveniencing users who make a minor system upgrade?
* Can you specify a set of locking parameters, with the license working if any one of them is matched? For example, perhaps your user wants to be able to run their license in one of any four machines – can you accommodate this?
* If some users really prefer dongle-based licensing, can you lock to a dongle as well?
* If you sell a system with your own custom hardware in it, can you lock the license to, say, the serial number in your custom hardware?
* How do you deal with the inevitable ‘My machine crashed – how do I restore my license?’ user inquiry?

License Relocation

The fact of life is that users often want to move their license to a different system, months or maybe years after it is first activated. This appears straightforward, but there are some issues to consider:

* Maybe you don’t want to offer this facility to everyone. Can you control which users are allowed to relocate their licenses?
* For users who are allowed to relocate their license, can you control how often they can do so? You may not want them doing so every day (that sounds like they’re sharing the license with others).
* Is there are any intervention required on your part during a license relocation, or does the product activation system take care of it? Is it secure?
* Can licenses be deactivated on disconnected systems?
* Your application may well have some settings your users adjust as they work with it, so your application runs exactly as they like it. Do they have to set these up again on the new installation (that would be annoying), or can you transfer them automatically?
* Does the product activation system track license relocations, so you know what your users are doing? Could it alert you when a relocation is done?

License Revocation

Maybe you don’t fully trust your customers, or perhaps you sell your product on credit, or on a monthly subscription, so might need to revoke a user’s license if they didn’t pay up or re-subscribe.

* Can your activation system revoke a user’s license?

Reseller sales

Perhaps you sell via resellers or OEMs now, or plan to do so. Maybe your sales department is looking for resellers overseas, or has it in their strategic plan? In that case, you’d better be ready to deal with the basic issue: how do you delegate order fulfillment (if desired) to your reseller, while still keeping track of the licenses they issue?

* Can your activation system allow resellers to issue licenses?
* If it does, can you restrict the range of licenses they can issue? For example, can you prevent them enabling certain features that aren’t part of their agreement with you, can you limit the number of licenses they issue, or set a maximum time limit on the licenses they issue?
* Can you generate a report on the licenses they’ve issued? Can they?
* Can you receive an alert when they issue a license?

Extensibility

While you may think that all your customers’ needs will be met with a product activation approach, what if that isn’t the case? Perhaps some users will not want any information to go out of their organization at all (often the case with some government and financial institutions).

* Can your activation system also support, say, dongle-based or floating licensing over your customers internal network, with no outside communication required at all?
* If you do need to support floating licensing or dongle-based licensing, does engineering have to re-do the licensing integration, or does the existing licensing system they integrated for product activation support it without needing any modification or replacement?

Platform support

Of course you need to protect your application on all the computer platforms you support.

* Does the activation system provide a client library for all your current platforms?
* How about platforms in your product roadmap?
* How about 64-bit platforms?
* What if a major customer requires support for a non-standard platform – can you readily obtain it?
* If your application is in Java, and you take advantage of Java’s platform independence, is the licensing library actually multi-platform, or are you introducing platform dependency?

Back-office integration and infrastructure

If your business involves a large number of licenses, or you expect it to, you may want to automate license fulfillment.

* Can you automate fulfillment from your back-office/CRM system, say via Web Services?
* Can you automate management tasks, such as backup, archival and reporting for the licensing system?
* Maybe you don’t want to host the license server at all. Is there a 3rd-party managed service available?

Clearly not all of these questions will apply to all software vendors, however they hopefully provide food for thought, and suggest areas you should consider to ensure your product activation deployment is successful.

Applied Presentation – Practice – Production (PPP) As an Approach in Teaching Grammar

“I never teach my pupils, I only attempt to provide the conditions in which they can learn.”
• Albert Einstein

There are several worldwide instructive approaches introduced by expert language proponents for language teaching. Presentation- Practice -Production (PPP) is one among the widely-used methods for grammar instructions. It is a traditional approach but its employment shouldn’t be taken for granted; careful planning is needed for its expediency. Its rudiments direct teachers to enable learning by stimulating learners’ ascending thinking levels through lessons’ well- defined objectives while they are entrenched in its three stages.

In PPP, teaching can be effective when the target language is controlled. Therefore, limiting language expressions as subject matters such as “is, are, am; there is and there are; this, these, that and those; can and can’t; can and could; may and might; proper nouns and common nouns, count and non-count nouns, active and passive modes, positive and negative statements, negative and positive questions with yes -no responses, zero conditional versus first conditionals,” among numerous lessons based from the language program’s sequenced outline being managed. At this juncture, learners need to be defined. Defining learners is teachers’ awareness of students’ comprehension levels, age, nationality and culture where the creation of tasks designs and examples to facilitate effective teaching are primarily based upon.

Teaching grammar structures through the PPP can be more operative when we associate instructive language expressions to students’ real-world environment. By linking natural contexts, their interests are being drawn or stimulated by prior knowledge and experiences. Matters such as their hobbies, films they mostly watch, travels in other countries, favorite actors from around the world, favorite games, happiest and scariest dreams, historical events they are conscious about other countries, folk and country English songs that they listen to, and more can be suggested as thematic backgrounds for students tend to be responsive in class activities when situations they are closely connected to are manipulated. Also, providing these kinds of frameworks reduce students’ learning passivity which is mainly due to lack of interest or absence of knowledge.

PPP’s fundamentals are explicated here in two separate ways. (A) One is through using different language targets in each stage to explain its underlying rudiments, and (B) the other is by an intertwined single target language interconnected to its three stages.

A. PPP Application in different language targets

In the presentation stage, language target is stimulated by demonstration strategies adopted by a teacher’s discretion. The students are expected to observe how new languages are generated from a teacher’s varied way of presenting. It is a fact that it isn’t suitable to feed students directly what their new lessons are. In here, it is favorable to hear teacher say, “We have a new grammar lesson today that connects to your favorite sports players around the world”. “Can you tell me the names of your favorite players?” rather than saying, “We will learn about common nouns and proper nouns.” “Your favorite sports players are actually proper nouns.” Presentation should incorporate discovery method which may take place by the introduction of tasks associated by supporting materials such as pictures, timeline, real objects, cited situations, a film clip depending on teachers’ discretion. At the end of this stage, the students will be aware of the target language, its initial rules and structures, which they themselves have inferred.

Secondly, practice stage is done after the students have discovered the language’s features. Based from a teacher -prepared activities, they apply the rules and structures. Presuming that our lessons are on singular and plural nouns, we can review these to highlight what they have learned in the presentation by having them cite nouns that they see in the second picture and have them list all the words in two columns according to names of things and persons. The students may be tasked to identify each word which is singular and plural from the two original columns that they have constructed enabling them to produce two additional columns: singular and plural nouns for people, singular and plural nouns for places, as facilitated. Together, in each column, the class transforms the words into singular or plural forms. Depending upon the availability of time, the teacher can further introduce some exceptions to the general rules on the different pluralization of nouns. Probably, the teacher provides an activity that demonstrates some nouns whose plural forms aren’t ending in ‘-s’ or ‘-es.’ For instance: child- children, cactus-cacti, radius-radii, memorandum-memoranda, woman-women, man-men, mouse-mice, goose-geese. Additionally, the teacher may feature some uncountable nouns such as: milk, sugar, cheese, salt, tea, coffee, bread and many other examples.

Production is a stage where students’ prior grammar knowledge along with acquired knowledge from the two stages are incorporated under given tasks to display an over-all learning outcome. It is recommended that the production activities should relate to reality for communicative purposes. Assuming that the target language is the present continuous with future meanings, the teacher may ask the students on what they are going to do this afternoon to be answered in complete sentences. The expected responses will be an application of the language’s earlier introduced formula, which is present be-verb + a verb in the -ing form + future time. At this point, the students are expected to produce an example by being specific about be- verbs. It is in this situation that the students are made to opt between ‘is,’ ‘are,’ and ‘am’ although generally, they were using ‘is’ or ‘are’ in the practice stage. Additionally, since the question is about them individually, they have to decide which subject they are going to employ. To add, they will also have to decide which part of speech they are going to use. And since, ‘I’ have been decided, they are aware that pronoun is going to be used specifically the subject pronouns, instead of picking up a subject from nouns. In conjunction to these stimulating activity, students’ cognitive ability continuous to work importantly. Therefore, the expected outputs will be sentences that are introduced by “I am” As an example, “I am meeting my friend this afternoon,” “I am traveling to Islamabad tonight.” Similar to other language focuses, the students are encouraged to manipulate the language expressions for whatever purpose they may truly serve through the integration of the target language’s forms and rules reinforced by their prior knowledge which maybe added with new related language to be processed when follow-up activities such as homework and other forms of enrichment exercises are provided.

B. PPP application in an intertwined single lesson

The most practical way to understand PPP is to perceive it in its three intertwined stages through an explicit lesson that showcases a single language focus along with its corresponding activities to be demonstrated in ascending manner. Below is an example of its application.

PPP will be elucidated through an interactive dialogue between a teacher and students with responses as upshots from the given tasks followed by commentaries that feature some practical learning processes’ significance which conceivably recommend some supportive measures in attempting to achieve an operative employment of this method.

The lesson

The target language is “used to” and the teacher is mindful that the class has already learned some grammatical points such as subject pronouns, subject-verb agreement and past simple verb forms in support to the new lesson which means that in an institutional language course outline, the lessons are sequenced appropriately according to the learning needs of students.

Objectives:

At the end of a 50-minute session, the students are expected to:

1. determine the use of the expression “used to”,
2. use ‘used to’ to transform sentences which are expressed in the simple past,
3. employ ‘used to’ in sharing their previous out-of-school activities,
4. write a paragraph regarding their experiences using the expression, and
5. enhance students” grammatical ability and creativity through expressing ideas in the past differently.

Commentary

Objectives provide very substantial roles in every lesson. Though we cannot cover all the intended outcomes in one lesson, the objectives should cater to a specific type of lesson by involving the three domains of objectives- cognitive, psychomotor and affective. Specifically, “determine,” ‘use,’ ’employ’ are indicators of cognitive objectives. ‘Write’ represents psychomotor and cognitive while ‘enhance’ signify affective. All these stated objectives are expected to be attained in applying the approach involving, “used to” in a class’ featured series of activities. These specific objectives become students’ performance indicators at the end of the teaching process.

Stage 1: Presentation

Teacher: Every one of you must have enjoyed your childhood similar to Munawar’s experiences when he was a schoolboy in Lahore. Listen, to some of his unforgettable activities that he used to do at the age of ten in Pakistan.

students’ answers:

climbed apple trees
went hunting with his father
played cricket with friends
read storybooks at the library
picked fruits during harvest time
helped his parents in the farm
prayed together with his father at the mosque

Teacher: All your answers are displayed on the board. Do you observe something at the end of every response?
Student: There is no punctuation. I mean, there’s no full stop.
Teacher: Yes, what else do you see? See all the beginning words of these answers.
Student: They are not capitalized.
Teacher: Right. Why aren’t they capitalized and punctuated?
Student: We only capitalize and punctuate them when they are sentences.
Teacher: Am I made to understand that these responses are not sentences?
Student: Yes.

Commentary

Even if the lessons are not on punctuation and capitalization, these significant points that popped up have to be processed. It is also in this setting when students are given the chance to determine the differences between a phrase and a sentence. These add to their basic knowledge which may guide them in language acquisition skills. It is a teacher’s responsibility to integrate these important points since these are natural teaching occurrences that surfaced currently in the middle of a teaching process. The teacher should never presume that the class knew about these relevant points for there could be more students waiting to absorb the right rudiments through a teacher’s elaboration. One student’s doubt which was never raised for some reasons could answer many students’ hesitations under these circumstances.

Teacher: Let’s get back again to what you have listened to about Munawar’s childhood activities. What did he do? Let’s change Munawar into another form. What should we use to represent Munawar? Go back to the subject pronouns and choose appropriately the word that we are going to use as a subject.
Student: “He” should be used.
Teacher: That’s right. Why do you think it is “he?”
Students: Munawar is singular and he’s a male.
Teacher: Exactly. This time, will I capitalize and punctuate using a full stop? Why should I capitalize and punctuate?
Students: Yes. We have made sentences. For this reason, we need to capitalize the beginning words and place a full stop at the end of every statement.

students’ answers.

He climbed apple trees.
He went hunting with his father
He played cricket with friends.
He watched TV with his family before going to sleep.
He picked fruits during harvest time.
He helped his parents in the farm.
He prayed together with his father at the mosque.

Teacher: What do you notice in each verb from the sentences?
Students: They are all written in the past form?
Teacher: What made you say so?
Student: The verbs end in- ed.
Teacher Why should we place -ed at the end of every verb?
Students: They happened when he was a child. These action words were done in the past.
Teacher: Also, you will notice that one past simple verb is of different form.
What is this word? Recall your previous lesson about the types of verbs.
Students: It’s an irregular verb.
Teacher: Can we accept this verb?
Student: Yes.
Teacher: Why?
Student: It also expresses past simple.
Teacher: Can you give more examples of these irregular verbs?

students’ answers on irregular verbs

tell -told
break-broke
make-made
feel -felt
see-saw
become -became
say -said
come- came
tear- tore
fly-flew
flee-fled
write-wrote

Teacher: Okay. Can we possibly write these sentences in another way?
What about inserting ‘used to’ before the verb in every sentence that we have made?
Students: Yes, we can.
Teacher: You are correct. Write your new sentence beside each sentence. Add ‘used to’ before the verbs but the main verbs should be changed into the present simple.

Students’ answers

He climbed apple trees. He used to climb apple trees
He went hunting with his father. He used to go hunting with his father.
He played cricket with friends. He used to play cricket with friends.
He watched TV with his family before going to sleep. He used to watch TV with his family before going to sleep.
He picked fruits during harvest time. He used to pick fruits during harvest time.
He helped his parents in the farm. He used to help his parents in the farm.
He prayed together with his father at the mosque. He used to pray together with his father at the mosque.

Teacher: Looking at your second group of answers, do you see how each sentence in every number differ from the first group according to verb forms?
Students: Yes, the first group made has past simple while the other was changed into present simple form.
Teacher: What made the changes of the past simple verbs in your second sentences?
Students: “Used to” made the changes in the verbs into present simple.
Teacher: We all know that the verbs in the first group of sentences are in the past form, and this means all of them were done in the past. When we made another group of sentences, we added ‘used to’ but we have written all the verbs into simple present form. Have we done these changes correctly?
Students: Yes, we have. When we placed ‘used to’, we are similarly rewriting the ideas in the past form in another way.
Teacher: Now, are they the same in terms of tense? Do the pairs have the same meanings?
Students: Yes, they do.
Teacher: Aside from using the simple past form to express completed actions in the past, what else can we use?
Students: We can write “used to + the base form of the verb.”
Teacher: Yes, it is accurate to use ‘used to + the base form of the verb’ to express actions that happened in the past.

Commentary:

The salient points to be observed in here are the utilization of previous knowledge of the language, close linkage of objectives to target language, interconnections of objectives in all activities with the inclusion of motivation. The presentation should be inductive for the students to infer instead of utilizing the deductive method. In using the inductive method, students will have the opportunity to figure out what language is to be learned and how do their structures to suit a specific rule or a general rule which they will soon discover. Also, application of prior language could be relevant as demonstrated by the substitution of subjects. Prior knowledge utilization is a form of refreshing them regarding the importance of previously learned languages. In here, they were given the opportunity to identify the order of the expressions in language constructions. To add, this stage directed learners to form a formula of their own which will guide them to perform series of exercises by stages.

There are some exceptions to the formation of past tense for irregular verbs. If it comes out, it is best to process its salient points in preparation for the practice and production. This should be reinforced by adding additional activities in the presentation.

Stage 2: Practice

Teacher: Let’s have more exercises to further understand the lesson. Here is a list of what a film director did when he filmed a movie in Quetta. Write them in complete sentences using the past simple form and changed each by adding ‘Use to.’

booked his crew in a hotel
talked to the mayor of the town
hired some extra cameramen
gathered other citizens to act as bit players
organized the actors schedules
gave time for performers to read their scripts
threw a party before going back home

Students’ answers

He booked his crew in a hotel. He used to book his crew in a hotel
He talked to the mayor of the town. He used to talk to the mayor of the town.
He hired some extra cameramen. He used to hire some extra cameramen.
He gathered other citizens to act as bit players. He used to gather other citizens to act as bit players.
He organized the actors’ schedules. He used to organize the actors’ schedules.
He gave time for performers to read their scripts. He used to give time for performers to read their scripts.
He threw a party before going back home. He used to throw a party before going back home.

Commentary

It is pertinent that the teacher stimulates the thinking of the students after the transformed examples as reinforcement of the presentation stage. Repetition is a form of reinforcement and a form of meaningful exercise since the students’ are made to think while they perform. After the activities, elaboration of the rudiments of this language focus is of high importance.

When “used to” is used, the original verb form from as simple past has to be in a simple present. It is advisable to have the students discover the changes. Their inference will be a great aid in retaining knowledge. The teacher’s role is only to trigger their ability to infer regarding the verb structure. At this juncture, a teacher is discouraged to feed thoughts directly to the students.

In real communication practices, these two expressions: past simple and ‘used to’ may be mixed up. It is best to emphasize that it is possible to occur. Every student should be aware that what they learned in the classroom are models and that they can be modified in a natural communication whether they are used orally or in written manner.

Stage 3: Production

Teacher: What about you, can you still recall your past activities years ago? Together with your seatmate, list what both of you used to do. Write them in a simple past verb and be able to transform these sentences using ‘used to.’ You will have three types of lists. Both students will deliver a talk about the tasks that they have completed. Help each other in forming the lists.
possible students’ list one (1) no subject with simple past

watched our favorite TV show every day
played football in the field
visited my friends twice
had picnics at the family park
went to Dammam every week
toured Bahrain once a month
travelled to Riyadh City with our cousins.
possible students’ list two (2) pluralized subject with simple past

We watched our favorite TV show every day.
We played football in the field.
We visited my friends twice.
We had picnics at the family park.
We went to Dammam every week.
We toured Bahrain once a month.
We travelled to Riyadh City with our cousins.

possible students’ list three (3) – pluralized subject with expression ‘used to’ replacing simple past.

We used to watch our favorite TV show every day.
We used to play football in the field.
We used to visit my friends twice.
We used to have picnics at the family park.
We used to go to Dammam every week.
We used to tour Bahrain once a month.
We used to travel to Riyadh City with our cousins

Teacher: Get back to list number one and share your ideas.
Students: List number one is introduced by simple verbs.
Teacher: Yes, that’s right. What have you noticed in list number two?
Students: There is a specified subject in each sentence.
Teacher: Correct. The phrases were completed as sentences. Are list number three and number two the same when it comes to tenses?
Students: Yes.
Teacher: Now, as a homework, make a timeline of five exciting things that you did last summer by using dates and past simple verbs or ‘used to’. Write them in a paragraph form by following the parts of a paragraph that we have practiced a week ago.

Commentary

Students were able to form the simple pasts independently, decided the subject to be used and substituted the simple pasts into ‘used to’ by enumerating experienced actions. These imply that students learning in the cognitive way is manifested in the production. Their ability to manipulate the language’s structures and rules through the tasks denote their expanding level of order thinking skills stemming from the presentation and practice stage. It is therefore encouraged that teachers can make the production stage operational by using series of interlinked activities in contexts even if this particular stage is similar to how they intertwined their lessons from the two previous stages. Provision of these activities allows them more opportunities to manipulate currently learned language targets and to apply formerly learned language contents.

Homework is a kind of production resulting to outputs that reinforce or enrich what they have learned. It is also recommended that language a newly learned focus must be integrated with the introduction of a new focus such as giving dates as time expressions. Date can indicate past actions and these are additional language expressions which they can work on in natural communication setting. Moreover, encouraging production’s favorable effects may proliferate among learners when they apply languages that are anchored to their real-life experiences.

There are no easy approaches to use in language teaching even if they seem to be. Teachers have to define their learners and apply some adjustments. Approaches are not done mechanically but rather flexibly based from students’ level and from the readiness of resources. Lessons’ objectives should be realized in the teaching process. Teaching experiences reveal that within a method, a strategy arises. It is also relevant to do some reflections regrading objectives that lead to learning directions. Do your activities relate with the objectives? Are they introduced by the input material? Are they confined in your desired setting? Are these manifested under teacher and students’ roles? Do they connect to the target language? Are they implied in the outputs? If they do, then PPP could be a viable method in your classrooms.

COST MANAGEMENT: Squeezing the (NON)VALUE Out of Overhead – An Activity Analysis Approach

In the Pleistocene era of manufacturing cost accounting (actually, only about one hundred years ago – it just seems longer), product costs were classified as: Labor, Materials and, Overhead – in that order. The order was not haphazard; it connoted the relative importance in dollar size of each. Labor was then the highest cost component, materials was next and overhead was a poor third. Well, now at the dawn of the twenty-first century and actually around the middle of the twentieth century, the order is reversed. Overhead is the most expensive component of the cost equation. In fact, as labor declines to third in the cost hierarchy and materials costs begin to stabilize in some of the mature manufacturing companies, the management of overhead spending can be the strategic management element in the profitability success equation. Knowing that overhead is the major component of manufacturing spending and putting aside the arcane methods for its accounting and allocation, how then can the senior management of manufacturing companies discern value in overhead in relation to its cost? Let’s take a look at some of the options and combine them into an overall program to find the value and reduce the costs.

What really is manufacturing overhead?

In plain managerial terms, manufacturing overhead is that agglomeration of expenses that don’t “add value” to the products made by the enterprise. Non-value-added activities, now the bogeyman of the era of Lean Manufacturing, are those activities that customers wouldn’t pay for if they knew the extent to which they existed. The most cited example of non-value-added activity is a quality inspection function. The customers would be saying to themselves, why would I want to pay for this when you the manufacturer should have been able to get it right the first time? The strategic implication being, of course, that if we were able to reduce or eliminate non-value added activities; the customer would not have to pay for them through lower prices. The potential for lower prices is largely a near term marketing issue but, in the long run, the costs incurred for products have a structural impact on a company’s and an industry’s prices and profitability. Recognizing that all non-value-added activities can’t be eliminated, some are placed in the category of “non-value-added, but necessary.” These are typically those that are driven by regulations (e.g., GMP, OSHA, FDA, SEC etc.). Other non-value-added activities, despite not being regulation driven, are tenacious in their seemingly innate ability to survive because people believe that if they weren’t incurred, dire consequences would follow.

From a micro-economic perspective, manufacturing overhead is a large component of the break-even point of the enterprise and therefore part of squeezing out value lies in minimizing it. It is the fixed period cost base that the enterprise must cover with incremental gross margin. Accounting gives us numerous expense classification and departmental views of overhead in the detail needed to analyze and reduce/contain this strategically important manufacturing cost component.

Manufacturing overhead has a time and variability dimension

Critical to the comprehension of value and the potential for manufacturing overhead reduction/containment is an understanding as to the behavior of individual natural expense classifications. Virtually all period costs are driven by one or another variable some of which are static and others dynamic. For example, the variable that drives depreciation is the dollar amount of fixed assets which in turn is driven by long-term investment decisions – a value decision that has already been made and absent a sea change in perceived value the cost associated with the decision is fixed. On the other hand, indirect labor in a large shipping department might vary (not in direct proportion necessarily) with shipment cubic footage. Of these two examples, one is driven by a static decision and the other by operating circumstances. The difference in time with which a change may be effected in these two expense classifications is dramatic. So, it is wise to view natural expenses for value and optimization in the following groupings:

Fixed in the long-term. Those related to a long-term decision – depreciation, real estate taxes, property insurance for which there are cost reduction opportunities in the next long-term decision cycle.

Fixed and controllable in the short-term. Those that have no discernible connection to a numerical variable – travel expense, outside services – for which value and magnitude judgments may be made on a monthly/quarterly basis.

Variable with activities. Expenses that may be connected to the occurrence of measurable production volume or non-production activities – indirect labor, manufacturing supplies, utilities – which may be controlled by management of the underlying cost driving activities.

Purely Variable. Expenses that vary in direct proportion to the production or sales curve. There are not many of these. Utilities and consumable tools in a machine intensive shop come immediately to mind.

The departmental dimension

There is a departmental dimension to analysis and control of manufacturing overhead as well. Overhead in manufacturing and manufacturing support departments is more easily related to activities on the shop floor and is susceptible to industrial engineering analysis. For example, the “indirect labor” and other expenses of a metal shearing department may be related to lineal feet of incoming sheet metal or the number of strokes of the presses. In contrast, expenses in administrative departments are principally related to management imperatives (that may not be relevant any longer) and may be analyzed and controlled through value/discretionary analysis and zero-based budgeting.

A new dimension – value

The watchwords of the lean era are “value-added” and “non-value added” so it seems that a discussion of value in manufacturing overhead would be a contradiction in terms. If value added is found only in those activities that actually alter the product to suit the customer’s needs, then how can a shipping department confer value upon the product and the enterprise? Perhaps we need to take a closer look at these notions of non-value added and value added to answer this question.

Much is said about how much time and effort is expended on control and reduction of the manufacturing activities that add value and how little is spent on the non-value added side of the shop. The popular estimates are that ten percent of shop activity is in value added activity and ninety percent is found in non-value added activity on the shop floor. The natural consequence of this revelation is to suggest that the “waste” inherent in such shop floor activities as inspection and material movement ought to receive the lion’s share of attention in reduction of non-value added work. Little is said in the same context about such “indirect” labor in manufacturing departments and administrative labor in the offices of a plant. So, in understanding value or its lack, we need to re-categorize activities and expenses according to a value dimension that overlays the time/variability and departmental dimensions. A value dimension goes beyond the simple assumption that all overhead is non-value added and will suggest that some “overheads” really aren’t that at all. The value dimension adds the following overlay categories:

Elimination potential: Those overhead activities and related expenses that represent inherent waste and should be eliminated. Improvement here is not an option; nothing is more useless than improving the way you do something you shouldn’t have been doing in the first place.

Exploitation/enhancement potential: This category covers those activities that might be considered “non-value added but necessary” and present an opportunity to improve the way they are done and to exploit them to squeeze value out of them. The numerous regulatory body proscriptions – ISO, FDA, GMP, Sarbanes-Oxley – that can’t be eliminated come under this heading.

Reduction potential: Expenses and activities that can be reduced correlate well with the time/variability groupings called fixed and controllable in the short-term and variable with activities.

Consolidation/redeployment potential: Here we will find the many administrative functions that have grown up in the organization in ways that either seemed to make sense once upon a time or were patched on to the organization when the need arose.

Part one – categorize the costs

The first thing to do in discerning value or non-value is to slot both natural expenses and departmental costs into one of the above value categories. Let’s take some examples.

In the “exploit/enhance” category, we might find the departmental expenses associated with an ISO effort – there are two basic ways to exploit this overhead grouping: minimization of the costs by controlling activities and by using the program as an adjunct to a quality at the source initiative.

In the “eliminate” category, we would note such really non-value added activities/expenses such as inspection, material handling, kiting and the like that we want to eliminate as rapidly as possible.

Moving to the “reduce” category is where we slot the activity intensive overhead items. These are the expense classifications that while variable with an activity, must be consciously managed when the activity level changes.

Finally, those overhead costs that don’t have much real variability but can be controlled go in the “consolidate/redeploy” category. Typically, these are administrative departmental costs which may need to be reconsidered from an organization standpoint to make sure that the managerial value desired is being received in relation to their cost.

Part two – perform the activity analysis

For those costs slotted in “reduce and eliminate categories,” the search for actual activities and cost “drivers” is the first task at hand. For these activities, we will want to discover that which the underlying cause of them is. The best way to do this is by drawing a value stream map of the entire manufacturing process. Value stream mapping is a subject unto itself but for our purposes, we can simply say that such a map is a diagrammatic and narrative picture of the human, material and information movements that comprise each operation in the sequence of the operations plotted against time. Such a map enables us to see the non-value added steps in the process and identify their root causes. Through further investigation, we can also quantify the drivers and activities that comprise the root causes and plot such quantities over time and identify their trend line. For example, after the value stream mapping and quantification of activities has been performed for a shipping department the significant overhead cost is indirect labor and perhaps the plant could get along with less people if shipments from this department decline. The shipping department would have been identified on a value stream map as non-value added yet reducible in short run with the potential to re-engineer the process and eliminate the entire shipping operation in the long run. There are usually numerous cost drivers and related activities like maintenance supplies expense would be driven by the quantity of small parts utilized which in turn is related to machine hours. The driver and activity can be plotted over time as in the indirect labor example above and a similar overage or underage computed.

Costs that come under the “eliminate as soon as possible” category are those which are susceptible to engineering analysis. Materials kitting or inspection on the shop floor, which may have drivers and activities, ought to be subjected first to industrial engineering analysis to determine how they may be eliminated and only be viewed as a reduction opportunity if elimination must be delayed.

Part three – redeploy

The growth of local administrative functions over the previous quarter century has added between fifteen and twenty percent to total overhead expenses. Such functions as accounting, materials and production planning, purchasing, human resources, once thought to add managerial value as part of a plant management team are now often being more efficiently and effectively deployed in corporate “centers of excellence.” Such centers of excellence provide the professional critical mass so that the highly trained and educated people who staff these functions can associate with their peers and can still interact with operations management at the plants for which they have responsibility through modern communications. Professional critical mass is the value component of center of excellence deployment and the value is enhanced by the economies of scale realized from having professional manufacturing staff work spread across more than one plant. It is of questionable value to have numerous purchasing professionals overworking local procurement issues by being physically and organizationally located on a plant site. Similarly, much of on-site plant accounting (accounts payable, cost accounting, general ledger), once believed to be the financial counsel to the plant manager, may hardly be relevant in an era of MBA plant managers.

Consolidation of administrative functions does not represent doing more with less. Rather, it represents doing the same with less and doing it better through superior deployment of resources.

Part four – exploit and enhance

Finally, we come to “exploit/enhance.” Here are located the overhead costs that can be classified as “non-value added but required.” These costs primarily represent an opportunity to cast them in the light of value. Most obvious, for those companies that have ISO programs in place, is the chance to utilize the ISO documentation for quality enhancement. More subtle but equally as valuable are the Sarbanes-Oxley business control requirements as they translate to accurate inventory records or accurate bills of material for cost of sales reporting. These “SOX” control requirements, while part of a mandate, can enhance the way manufacturing is managed and can contribute to lower costs (of physical inventory, accounting errors, etc,) in the future. Rather than bemoaning the cost of such apparent non-value added costs, they should be embraced and exploited for their business value.

No one would argue that these costs should be not be subject to cost controls while value is being sought. A quality department subject to FDA regulations could maintain a traditional program to contain the cost of the regulations and simultaneously pursue a program of lean practices to make compliance efficient and less costly over time.

Overhead and value are not necessarily contradictory terms. A program that categorizes overhead according to behavior and value keeps a focus on this all important cost component and permits management to ascertain that it is getting value for its money!