Fixed Capacity Is a Cost Whether You Use It or Not
Manufacturers expect input costs to rise faster than prices in 2026. Here's where the gap hides — and how a task-level model prices it.
Andrew S. Collier · Founder & Managing Principal, Collier & Associates · September 30, 2026
Manufacturing is still expanding. ISM's August report held the PMI at 54.6, an eighth straight month above 50. But new orders fell three points and employment slipped, and NAM's second-quarter survey carries the number that matters for margin: manufacturers expect input costs to rise 5.8% over the next year while their own prices rise 4.2%.
A gap like that doesn't disappear. It lands in places no budget line names: overtime to protect a ship date, expedites to cover a planning miss, the spreadsheet a coordinator maintains because the system can't. And it lands on top of a cost most operations have never priced.
Expected 12-month change in input costs vs. own product prices, NAM Manufacturers' Outlook Survey, Q1 and Q2 2026
The cost you already pay
Every operation carries fixed capacity: people, machines, space, and systems you pay for whether they run or not. Standard costing hides most of it as indirect cost, allocated across products by some driver that has nothing to do with the work. The effect is predictable. Products can look more profitable than they are, unconsumed hours vanish into overhead, and few operations can say what an order actually costs to fulfill.
A task-level model fixes the denominator first. The rate for any resource is its total cost divided by its theoretical hours, and it never changes with utilization or efficiency. A $124,800 employee is $60 an hour whether the hour is consumed or not. Then the model documents the work against that capacity, one task at a time, and reconciles three tiers to the general ledger:
• Theoretical capacity — the total cost, 100%, the cash you spend regardless.
• Practical capacity — what's actually available after utilization and efficiency factors.
• Consumed capacity — what the documented tasks add up to.
If the three don't reconcile, the model isn't ready. When they do, the unconsumed practical capacity is visible, priced, and available for growth without a hire — or for elimination.
Three tiers, one ledger — reference engagement, distribution and fulfillment plant (Macmillan/MPS, 2016)
What it looked like at a turbine plant
The turbine and generator repair division of a Global 500 manufacturer had lost money for twenty years. Estimates took days to weeks and were unreliable. Job status lagged the floor by a week. Twelve-plus standalone repositories carried the real operating record.
The model showed fixed capacity buried as indirect cost, no estimating standards, and planning, execution, and costing in disconnected silos. The remedy was an operating model, not a software upgrade: estimating from generic standards, a project office with named role owners, and a decade-old JD Edwards implementation reconfigured to carry the new process.
Estimates fell to under four hours. Job status moved to within a shift. Quality issues dropped 90%. Fewer than 5% of active jobs ran past due. EBITDA went from −20% to +10% in under two years.
Alstom Power turbine and generator repair, in-engagement outcomes, 2005–2007
What to do with the 1.6 points
You can't manage a cost you've never priced. Before the next budget cycle absorbs the gap between input costs and prices, price the work: which tasks, which roles, which hours, at the ledger rate. That's four to six weeks of fieldwork on a scoped footprint, and it produces findings graded as released capacity, realized cost-out, or avoided cost — never summed into one number — each with a cost to achieve and an owner. The model your team keeps afterward is the instrument for every capacity and cost decision that follows; re-run it after implementation — your team or mine — and the savings are audited against the baseline that produced them.
If you run a plant, a distribution operation, or a portfolio and want one process measured in two weeks, call 502-317-8900 or write to andy@andrew-collier.com. I'll show you the method using anonymized data and real examples from past engagements before you spend anything.
Andrew S. Collier · Founder & Managing Principal, Collier & Associates · Greater Louisville, KY
502-317-8900 · andy@andrew-collier.com · andrew-collier.com · linkedin.com/in/andrewscollier
Creator of BAS™, the task-level cost, capacity, and value model behind the BAS™ Value Creation Sprint. 40 years in enterprise transformation; 100+ enterprise systems engagements; 40+ business transformations; 29 JD Edwards implementations; six interim CIO, CTO, and IT Director roles; 6+ years of PE M&A transactions as advisor to PwC, Deloitte, and Crosslake Technologies.
Sources: ISM Manufacturing Report on Business, August 2026; NAM Manufacturers' Outlook Survey, Q1 and Q2 2026; Collier & Associates engagement record (Alstom Power, 2005–2007; Macmillan/MPS, 2016).
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