26 Oct Counting – and cutting – the cost of manufacturing
The UK manufacturing sector is continuing its recovery from the pandemic as output and new orders increased, according to the latest industry data from the IHS Markit/CIPS Purchasing Managers’ Index (PMI). The data shows that output increased for the fourth consecutive month in September, despite the rate of growth easing slightly. Higher production was linked to improved inflows of new work, companies reopening and staff returning to work.
As manufacturing businesses continue the sector’s promising recovery, businesses are likely to start investigating more cost-cutting measures in an attempt to improve the balance sheet. We all know that higher orders lead to higher outputs and typically, higher profits. But they can also result in higher costs and even bigger financial and operational headaches for manufacturers.
Production costs are often the biggest and most pressing areas of spend for manufacturing companies. Rising raw material, component prices and energy are a key contributor to these rising costs.
So too, are the actual day-to-day production processes themselves, where products, like tooling and other consumable items costs continue to rise. But they’re also constantly susceptible to inefficiencies that can lead to machine breakdowns and costly repairs and downtime. Then there’s factors, such as staff sickness and absence to add to the equation too. Even one of these factors could set back your recovery plan if not addressed quickly.
With so many different cost-increasing contributors at play, it’s easy to see why production process costs are one of the main challenges for manufacturers.
It’s also easy to see where many of these unnecessary costs are creeping in and can be cut…
Cost culprit 1: Productivity
It’s not uncommon for production inefficiencies to hamper everyday processes. Therefore, one of the areas we focus on for our manufacturing customers is improving productivity and reducing average cycle times.
Factories will invariably have machines that aren’t operating as efficiently as they should be. For example, it could be something as simple as the machine being left running empty throughout night when everybody’s gone home (yes, this does happen!) Or, three production lines could be running when only one is actually needed. It’s also not rare for equipment to lack the regular maintenance and servicing it needs in order to operate at optimum performance.
Cost culprit 2: Energy
This is another area we always unpick, and our investigations don’t just simply involve looking at utilities either. We take a holistic approach to power consumption by looking at how manufacturers can reduce their energy usage (short-term fix) and their entire carbon footprint (long-term fix), plus more…
Cost culprit 3: Supply chain
Integral to all manufacturing businesses, supply chain management’s also a big cost hike contributor and an area where significant cost savings can be made. Measures, such as increasing purchasing power by using group suppliers can generate significant cost reductions. So too can switching from multiple suppliers to just one or two preferred suppliers, who are open to reducing costs to increase their own economies of scale.
Our Cost Reduction Programme helps manufacturers evaluate their overall spend
Our i-QMN Spend Data Analytics solution features a range of tools that have all been specifically designed to pinpoint where efficiencies and cost savings can be made while reducing supplier risk and improving overall supply chain management.
We initially start by carrying out a discovery session where we analyse all aspects of the business. This insight is then used to produce a detailed report that sets out the savings that could be made and the steps that need to be taken to make them happen.
Companies that go on to implement the recommended actions feel the widespread benefits of doing so that extend far beyond initial cost savings:
· Increased profits and overall bottom line impact
· Greater productivity and improved manufacturing efficiencies
· Better staff morale due to the fact processes are smoother and more efficient and productive
· Business growth generated by more efficient ways of working and increased cost savings
· Increased competitiveness as a result of improved production, quality and lead times
· Enhanced customer satisfaction and repeat business due to the fact some of the cost savings can be passed on to customers
A case in point: Reducing costs by more than 5%
A leading UK supplier of high-quality precision machined components has doubled its turnover in recent years and has detailed plans to double it again over the coming years.
The business currently spends approximately £2.4million within its supply chain and is aware that it faces future capacity constraints as the business grows.
We use our i-QMN Spend Data Analytics system to review how the company spent its money, including monthly spend outlay and volume of products and purchase orders.
This data was then used to identify the key cost drivers that would improve spend and the administrative burden relating to high order volumes. We also identified significant opportunities to deliver supplier consolidation and implement Long Term Agreements with selected suppliers that will enable the company to work more collaboratively with suppliers to reduce machining times, unlock extra capacity to support future growth and reduce costs.
Our analysis and recommendations are set to reduce costs by over 5% (£131,000) and deliver many other key benefits, which includes improved productivity within the office and shop floor.
Are your production, or other business costs keeping you awake at night?
Do you want to achieve organisation-wide savings and improve your operational performance at the same time?
Book a free, no obligation discovery session today. In the meantime, learn more about our Cost Reduction Programme.