Simple Suggestions Can Help Reduce Manufacturing Costs
By: Art Davis

I’ve run across some simple and often overlooked ways to improve operations that can trim as much as 15% to 20% of manufacturing costs. The best part of all is that these improvements can he implemented and realized in less than a year. Here are seven suggestions that manufacturers should try over the coming year:

1. Have the purchasing department re-bid the highest-cost parts and materials reduce the number of vendors and initiate vendor stocking where vendors hold inventory for their customers. Results: Often a 10% reduction in the cost of materials and a 25% reduction in raw materials and purchased-parts inventories.
2. Reorganize to reduce the number of management levels at each plant to no more than four Research shows that the best companies have three, usually self-managed, hourly teams. Use six to eight as the ideal span for salaried employee reports and 15 to 25 for hourly employees. The wide range in hourly is a direct function of the geometric disbursements of people. Be sure that each plant has no more than one salaried employee for every 10 hourly employees. Results: A 10% to 30% reduction of white-collar employees is possible, depending on the situation.
3. Redesign the layout of the factory floor based on product flow. Start with the high-volume products first, especially where equipment can be dedicated to their production. If capacity is an issue at the start of the program, farm out production requirements to subcontractors. Results: A significant reduction in inventory investment by 50% to 80% for the products where this is applied and included in the inventory-carrying cost and the elimination of material handling, damage and obsolescence. It’s possible to achieve 10% to 20% improvement in direct labor efficiency, a 50% reduction in the cost of quality and an 80% to 90% reduction in manufacturing lead-time.
4. Implement a setup and changeover-reduction program or make better use of existing capacity especially where bottlenecks occur Results: A 15% improvement in direct labor efficiency because extra capacity is available to produce product. In addition, a 25% reduction in indirect labor cost is achieved for the setup- and changeover-time improvement.
5. Revise production planning and scheduling procedures to reduce the number of orders on the shop floor and eliminate or drastically reduce planned wait or queue times between operations in the planning and routing system. Results: A 15% lower work-in-process inventory and improved carrying costs. This also results in improving manufacturing lead-time.
6. Start a program to simplify products and processes. Design products with inputs from manufacturing and get market and hourly employees involved. Use marketing for ownership, hourly employees for ideas and both for teamwork.
   Results: Product-cost reduction of more than 10% with some benefits accruing during the year.
7. Redefine roles and responsibility to make production personnel responsible for quality as well as routine maintenance. Results: A 50% to 70% reduction in inspection costs and improvement in process reliability.

Art Davis
Principal
The Davis Group

About the Author

Art Davis is principal of The Davis Group, a Chicago area consultancy specializing in business process improvement and total quality. He has delivered many training programs in Six Sigma for Motorola, Caterpillar, ITW, Litelfuse and other firms. For more information call: 800-959-0632.

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