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Jan 21 2014

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6 Ways to get Smart and Cut Manufacturing Costs

top_6_ways_to_cut_manufacturing_costsWhen it comes to “modern” manufacturing intelligence, a lot has changed in recent years. Manufacturing issues have only grown more complex, while the new technologies that have evolved to meet these challenges now require new knowledge to understand, implement and leverage effectively. Companies now find themselves under pressure for more rapid product introductions, adaptation to local market conditions and continuous improvement to optimize costs, quality and efficiency.

As a result, manufacturing executives need unprecedented visibility and control over the entire production process while creating cost efficiencies at the same time. The objective to improving visibility is primarily to gain information faster, which can then be converted into intelligence and better decision support. The suggestion to get “smarter” with how we operate starts with a quest for “ultimate” visibility.

With this in mind, let’s take a look at some common measures and visibility benefits that are now possible with a “modern” manufacturing intelligence solution, which can help executives better manage their manufacturing assets in a way that meets customer demand and might actually also help a company to save some money.

I would propose that the time-tested DuPont model is still a viable approach to break down the Return-on-Asset (ROA) equation into component parts to optimize capital investment and measure your manufacturing operations management performance. Specifically, the components include increasing revenue for more asset turns, reducing costs for more payback, and lowering the asset base for higher productivity. Better decision making – and the tools that support it – offer the potential to improve in each of these areas, so can justify investment in the technology that supports it.

Consider taking a closer look at the following areas to drive better efficiency in manufacturing operations.

 

  1. Process optimization. Before talking about cost, you need to look at your entire process. Focusing on the process rather on the product or product-related cost might be the initial important departure from your current (usual) practice. Getting all great details of the (even not-yet optimized) process characteristics – prior to any improvement attempt might force you to draw a bigger picture than you are used to. This helps to manage the whole and not a part, avoiding partial process optimization or improving a process part but (unintentional) damaging another (maybe down-stream) part and sometimes making output even much worse.
  2. Workforce optimization. By taking a demand-calibrated versus a capacity utilization approach to production decisions, companies can better balance workforce requirements and optimize labor costs. Reduced overtime expense can be a major source of savings.
  3. Energy consumption. For many manufacturers, energy represents the first or second highest (with labor being the highest) cost element. By making demand-driven decisions, companies can choose to run slower to save energy without sacrificing customer service or output. Real-time, accurate visibility into the operating conditions is critical.
  4. Lower cost of Quality. With better access to enterprise quality intelligence, as a component of overall manufacturing intelligence, companies can improve root cause analysis, take corrective actions more quickly, and even proactively prevent spills or quarantines from occurring in the first place.
  5. Lower cost of regulatory compliance. As a continuation of improving quality and real-time visibility to how quality processes are executed and managed, it follows that the benefits not only reduce the cost of compliance, but also help to avoid production mistakes in the first place, which can cost a fortune to correct.
  6. Inventory carrying costs.  Storing product inventory for a long period of time comes at a cost. Manufacturers need to consider the cost of storage, any necessary insurance, maintenance and other factors.  Whenever possible, manufacturers will benefit from nimble and responsive manufacturing operations to avoid overproduction and the resulting excess storage costs and risk.  By calibrating operating cadence to customer demand, companies can avoid “out-of-stock” occurrences without storing excess inventory.

 

Identifying and putting in place common production measures like these will help manufacturing executives attack costs network wide and create a mechanism for prioritizing continuous improvement projects while continuing to meet customer demand.

These 6 areas form the solid foundation for manufacturing excellence. They also determine the dimensions and detailed scope of the imperative operational visibility, which will be the main subject of my next blog post!

Permanent link to this article: http://www.apriso.com/blog/2014/01/6-ways-to-get-smart-and-cut-manufacturing-costs/

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