Part 1
By Ron Ketterling - President
In Part 5 of our "Effective Ways to Reduce Manufacturing Costs" series, we discussed how standardization supports the concepts of build-to-order and mass customization. By making all parts available at all points of use, standardization improves flexibility and reduces costs for manufacturers. There are many different approaches to standardizaiton; however, in this article we will be discussing the Zero-Based Principle.
The zero-based principle is an effective technique which reduces the number of different parts (part types) by standardizing on certain preferred parts. While this usually applies to purchased parts, it can also apply to manufactured parts. Founded upon the zero-based principle, this technique asks: "What is the minimum list of part types needed to design new products?"
This approach works best if companies are at the beginning stage of developing a product line. Before product development begins, the company needs to decide which parts are essential in creating the product line. By developing the entire line around common parts, companies can eliminate excess parts and save on manufacturing costs.
The idea of this approach is to start at zero and add only what is necessary for the creation of the product rather than eliminating products from a long list. Eliminating parts from your current list would take a great amount of effort and time. The zero-based approach is the more efficient and effective route.
While many approaches remove excess parts from an existing system, the zero-based approach excludes the excess parts from the beginning. This saves significant costs as excess parts incur overhead costs for administration and lower the manufacturing plant's efficiency and machine performance.
Companies must remember that this approach is meant to be implemented at the beginning of a new project, not in the middle of a current product line. However, when the common parts are functionally equivalent in all respects, parts may be eliminated on existing products and replaced with equivalent parts.
Implementing standardization within a manufacturing plant requires the right tools. Download our "How to Choose a Manufacturing System" guide to see if your current system will be a help or a hindrance to implementing standardization and reducing your manufacturing costs.
Part 3
By Ron Ketterling – President
As we discussed in Part 1 of our “Using Lean Production to Reduce Manufacturing Costs” series, lean manufacturing starts with understanding what creates value for a customer and delivering it in the most cost-effective way possible. Often, before we can begin reducing inventories and eliminating waste, we need to assess our work areas.
An unorganized workspace can lead to an increase in production time and, eventually, costs. The 5S strategy of lean production focuses on cleaning up the workspace for optimal employee performance. The following concepts will greatly improve efficiency and increase your company’s bottom line:
- Sort. Eliminate all unnecessary items from the workspace (including unnecessary tools, parts and instructions). Sort through all tools and materials in the work area, keeping only the essentials. Place the essentials in easily-accessible places and store or discard the rest.
- Set in Order. Everything should have a place, and everything should be in its place. Clearly label the place for each tool and material. Arrange the items in a manner that promotes efficient work flow (making the equipment used most often easily accessible).
- Shine. Conduct regular cleaning and maintenance on equipment in the workspace. Keep the work area clean and tidy, making sure not to leave any trash or debris. Make it a habit to clean up the workstation and store all materials in their proper places at the end of each shift. Maintaining cleanliness should be a daily task, not an occasional activity.
- Standardize. Work practices should be consistent. All workstations that perform the same job should be identical. Employees that work the same jobs should be able to work in any station with the same tools and materials in the same location.
- Sustain. Maintain and review the standards with your employees. Encourage them to maintain focus on this new way instead of falling back into old practices. Continue to look for improvements.
Lean Manufacturing’s goal is to eliminate all waste, including time spent in production. The 5S strategy helps employees reduce the amount of time preparing for production and searching for materials. It also improves employee engagement and encourages them to look for ways to reduce production time.
Learn more about using lean production methods to reduce manufacturing costs by downloading our article series on Lean Manufacturing insights.
Part 2
By Ron Ketterling – President
Part 3 of our “Effective Ways to Reduce Manufacturing Costs” series introduced the importance of inventory reduction in lean manufacturing. After waste has been eliminated, companies must then assess their inventory costs. By reducing all in-process or current inventory, businesses can lower costs and, ultimately, raise their profits. While companies use several techniques to go about reducing inventory, the Just-in-Time (JIT) strategy is one of the more popular techniques.
According to the principles of the Just-in-Time strategy, inventory is considered to be waste. Many companies view a warehouse full of goods as an asset to their business; however, lean manufacturing considers goods that are not being shipped or sold wasteful. If those products are just sitting there (racking up storage costs) and no profit is being made on them, the company is essentially wasting money. The Just-in-Time strategy encourages companies to hold little or no inventory beyond what is required for immediate production or distribution.
With that in mind, you do not want to get rid of your inventory entirely. On-hand inventory can alleviate the stress of unforeseen production problems, such as holdups, mechanical errors, equipment errors and workforce challenges. The extra inventory can help protect your business should a problem arise.
The goal of the JIT strategy is to help businesses make sure they have the right amount of inventory on hand as it is needed. Any extra is considered to be a waste. For this strategy to work, consistency is key. Find suppliers that will comply with the Just-in-Time strategy and offer a reasonably priced, high-quality product.
The Just-in-Time strategy reduces costs, eliminates waste and improves efficiency, allowing the company to get products to the customer on time with little cost. Learn more about reducing costs through lean production by downloading our article series on Lean Manufacturing Insights. This informative guide will show you how to effectively eliminate waste and introduce several lean manufacturing strategies.
Part 1
By Ron Ketterling, President
In Part 3 of our “Effective Ways to Reduce Manufacturing Costs” series, we discussed how adopting lean manufacturing principles can reduce manufacturing costs by increasing employee productivity, reducing inventories and production time, and cutting errors and scrap by half. We introduced waste elimination in ourprevious article on Lean Production; however, we would like to go more in depth and discuss how companies can effectively eliminate waste and, ultimately, reduce their manufacturing costs.
Before you even begin to implement lean manufacturing strategies, you must first understand what creates value for a customer. Only a fraction of the total production time and effort actually adds value for the customer. By understanding what the customer wants, companies can identify all the non-value activities (waste) within the organization.
Waste can be defined as any activity that does not add customer-perceived value to the product. Waste can take many forms, such as overproduction, waiting time, excess inventory, over-processing, defective units and transportation. By identifying the forms of waste within the company, businesses can then find ways to eliminate that waste.
Once you have identified the types of waste, you must estimate the size of these wastes. How will eliminating these wastes change the production process? What are the reasons we have been operating with these wastes? By identifying the original problem, you can come up with a solution that will eliminate waste and reduce overall cost.
Learn more about reducing costs through lean production by downloading our article series on Lean Manufacturing Insights. This informative guide will cover the principles of lean production, show you how to eliminate waste and reduce manufacturing costs through lean manufacturing strategies.
Part 4
By Ron Ketterling - President
As we’ve discussed, reducing manufacturing costs begins in the design stage. After spending a significant amount of time in the planning stage attempting to minimize part costs and reduce the cost of quality, companies must focus on a crucial cost-savings strategy: vendor/partner relationships.
By focusing on vendor/partner relationships that build value, companies will reduce their design and manufacturing costs significantly. Instead of sending out bids to multiple vendors, build relationships with vendors and partners that will engineer custom parts for your business. This unique relationship with specific vendors and partners will not only save you more money than sending out for multiple bids, but it will also save you a significant amount of time.
These relationships save costs because vendor/partners understand and operate according to DFM guidelines, know their own process capabilities and can help company engineers avoid making costly mistakes that could raise costs, delay delivery and compromise quality. The vendor’s engineer can also work with the company’s engineer to design low-cost tooling, which can be used to produce higher quality parts.
Vendors and customers will learn from each other and, in response, strive to make each job better, faster and less expensive overall. This relationship provides the lowest total cost because interacting with the customer’s team results in:
- Vendors understanding the challenges and issues faced by the customer
- Vendors making suggestions early on in the process that will maximize manufacturability
- Vendors working with customers early in an effort to keep the total cost to a minimum
As you can see, vendor-partner relationships are crucial to reducing manufacturing costs in the design stage. By focusing on building these important relationships, you can minimize the total cost of design and continue to reduce manufacturing costs by working directly with your vendors and partners. For more information on effectively reducing manufacturing costs, download our guide, “How to Choose a Manufacturing System”.
Part 3
By Ron Ketterling – President
Manufacturing costs can be reduced simply by spending more time in the planning stage rather than rushing to start the design and production process. Up-front preparation allows teams to discover problems prior to design, saving the time, cost and frustration of change orders to fix faulty designs.
Effective planning requires developing a team of key department personnel (engineers, manufacturers and designers) and vendors to discuss all foreseen issues of the product. With the experience and expertise of each team member, the design of the product will be thorough and most problems will be discussed and solved prior to their occurrence.
Prior to design, the product must be defined. Often, design starts with a poor product definition and requires change early on for redefinition. Taking the time to define the product and the goal of its production will not only save you multiple change orders, but it will also result in a better product overall.
Defining the product requires (if you plan to be successful) that you know who your customer is and what the customer wants. This is a good time to make sure that you have an active partnership between Marketing and the rest of your team (Engineering, Manufacturing, etc.)
You may have a design concept meant for a sophisticated buyer, but perhaps the market opening is for the first time buyer who is looking for a simple product with a low to moderate price point. Your design may not fit that market. Explore the concept with your Marketing team. Get some first-hand advice from consumers. Your Marketing team probably already knows to whom you should be talking. Defining the product begins by defining the buyer and end-user (the buyer may be someone other than the end-user.)
Although many companies view the planning stage as a waste of time, it is crucial to reducing overall manufacturing costs. It not only saves time, but it also eliminates costly errors and change orders during design and production.
Let us help you take control of the planning process and better manage change orders. Download our guide, “How to Choose a Manufacturing System” and learn how your system can help simplify the manufacturing process.
Part 2
By Ron Ketterling – President
As you might remember from Part 8 of our series “Effective Ways to Reduce Manufacturing Costs”, reducing the cost of quality is an important step in reducing manufacturing costs. Often the return on investment (ROI) does not warrant the cost of quality; therefore, evaluating and reducing quality costs early in the design phase can give companies a unique advantage.
Reducing the cost of quality begins with designing products for the minimum quality costs. To determine the minimum quality costs for the product, you must calculate the total cost. Since cost of quality should be the first cost driver to be quantified by total cost, the minimum quality cost should be easy to determine. Ask yourself the following questions when determining the minimum quality cost:
- How low can the cost go without compromising the integrity of the product?
- Where can the design of my product be simplified?
- How does the cost of quality impact the total cost?
Minimizing quality costs to yield a greater ROI also requires understanding quality issues and capitalizing on lessons learned in the past. It requires thorough up-front work so production teams can optimize quality by design, as well as inter-department teamwork to address all potential issues before entering production.
Extensive planning and preparation is required when reducing quality costs, but the results are worth the effort. Simply reducing quality costs can
increase sales by creating a higher-quality profit and greatly reduce overall manufacturing costs.
Download our “How to Choose a Manufacturing System” guide to see what kind of system can help you better lower you’re the quality costs of your products before production even begins.
Part 1
By Ron Ketterling – President
In Part 2 of our “Effective Ways to Reduce Manufacturing Costs” series, we discussed the importance of product design in relation to lowering manufacturing costs. Since cost cannot be removed after the product is designed, it must be taken into account when designing the product. Product architecture alone can account for 80% of the cost, as well as determine key strategies for the product’s life-cycle. The designers, engineers, manufacturers and purchasers should work together throughout the entire design to figure out the best way to reduce the cost of the product.
Designing products to minimize part cost and material overhead is the first strategy to lowering costs from the beginning of the design process. A huge component to minimizing part costs is buying off-the-shelf parts. Buying off-the-shelf parts can save considerable amounts of design and production time, as well as save on costs and help the company focus on the real mission of designing and building quality products. Suppliers of off-the-shelf parts are more efficient at their specialty, often producing high-quality, reliable and warranty-covered parts that you could not have produced on your own.
Minimizing material overhead costs is also crucial to cutting cost in the design stage. Consider the drivers behind the costs in your material overhead and plan an effective way to reduce or eliminate those drivers. Negotiate with vendors and suppliers to reduce procurement costs and minimize inventory costs wherever you can.
By purchasing off-the-shelf parts and minimizing material overhead costs, companies can work cost savings into the product design itself. This substantial, up-front savings greatly reduces the overall manufacturing cost of the product.
Learn more about reducing costs by downloading our “How to Choose a Manufacturing System” guide. This informative guide will help you identity areas where your system may need fine tuning to help you optimize your cost saving efforts and simplify the production process.
By Ron Ketterling - President
Over the past month, we have discussed the most effective ways of reducing manufacturing costs. The opposite end of the spectrum, however, is just as important. Knowing how to not lower costs will save you time, effort and significant amounts of frustration. The following tips offer insight into the list of Don’ts you need to be aware of when attempting to lower costs.
- Don’t try to remove cost after the product is designed. Cost is designed into the product, thus making it very difficult to remove later in the process. Attempting to reduce the cost after the product has been designed often leads to more costly changes and problems.
- Don’t use low-bidding. Low-bidding, or choosing cheap parts, is not the answer to lowering total costs. It not only fails to achieve real cost reduction by lowering only one category of cost, but it also raises many less obvious costs. In addition to raising some unforeseen costs, low-bidding compromises essential goals of manufacturing, such as quality of product, delivery and contributions from partners and vendors eager to be a part of the manufacturing process.
- Don’t use off-shore manufacturing. Off-shore manufacturing, however promising it may seem, does not result in a net cost savings. Hidden overhead costs cancel out the potential savings, and the concept itself goes against 6 of the 8 cost reduction strategies (presented in March’s article series) due to the following reasons:
- Off-shore manufacturing separates manufacturing from engineering, thwarting Concurrent Engineering and compromising 80% of the cost determined by design. The transfer, support and issues related to the delivery and quality of remote manufacturing also absorbs many resources in engineering, manufacturing, and purchasing that could have been used to develop low-cost products and reduce overall costs.
- Off-shore manufacturing causes an increase in delivery time, making it hard to pull parts just-in-time and making build-to-order nearly impossible.
- Lean Production methods are not carried out in off-shore manufacturing since parts are often batched for shipping.
- Off-shore manufacturing removes producttion from the control of the OEM manufacturer.
- Don’t take prototypes into production without commercialization. With the pressure to get the product drawn up and into production as soon as the prototype works, many companies overlook commercialization. Unrefined products that have not been designed for manufacturing could have many problems with product launches, quality assurance, consistent functionality and higher production costs than projected.
- Don’t try to save cost with unethical business practices. Don’t skimp on quality when buying parts and designing products. It is not only unethical to sell second-rate and unsafe products, but you are also damaging the name of your company when you do it. Also, don’t lay off employees in order to off-shore their jobs. This betrays loyal workers and, ultimately, hurts the people in the surrounding community. Make it your utmost importance to operate according to the highest ethical business standards and policies.
As you can see, there are many methods to avoid when lowering costs. By keeping the overall quality of your product in mind when trying to lower costs, you will make more effective decisions for both your company and your clients. For more information on effectively reducing costs, see our introduction article to “Effective Ways to Reduce Manufacturing Costs”.
Part 9 of Business Automation Specialists of Minnesota’s article series
By Ron Ketterling – President
As we have discussed throughout this series, reducing manufacturing costs relies on multiple activities and methods. The last method in our series, total cost measurement, focuses on calculating the total cost savings to encourage and support continual savings.
Implementing total cost measurement begins with the cost driver approach. Cost drivers are the root causes of a cost, or the things that drive the cost. Recognizing the factors behind the costs will provide you with more accurate and relevant information, as well as encourage further efforts to lower or eliminate manufacturing costs.
Identifying the major cost drivers and measuring the costs to those drivers is the key to total cost measurement. A company’s overhead expenses can give significant insight into cost drivers. Even though the drivers may not be directly linked to the overhead costs, the overhead contains costs related to the most important cost drivers. For costs that are defined as neither direct material nor direct labor, you can start looking at the drivers behind those costs and how they impact the total expenses.
Until the total cost can be quantified, everyone must make decisions with total cost in mind. Linking cost with the behavior and characteristics of products or customers will reveal areas that need cost and investment reduction. Senior management must understand the importance of quantifying total cost, implementing total cost measurements and encouraging every cost decision to be made on the basis of total cost. This will not only reduce manufacturing costs; it will transform your company. Calculate total cost with ease. Download Business Automation Specialists of Minnesota’s guide on “How to Choose a Manufacturing System” to see if your current system will be a help or a hindrance to reducing your manufacturing costs.