Actionable Advice for Reducing Operating Expenses in Manufacturing

Much has changed in recent years with regards to manufacturing intelligence. While manufacturing issues have become more complicated in nature, new technologies have emerged to manage those challenges.
With speed-to-market becoming such a critical aspect of the supply chain, manufacturers are pressed to meet the delivery date, regardless of any issues, using the most cost-effective methods.
To determine cost-saving areas, you must improve your business’s visibility by asking yourself: What’s taking the most time, and what are my highest operating expenditures? Taking a deep dive and asking questions results in the beginning of efficient communication and intelligent decision-making.
All of these factors play a major role in reducing operating expenses via smart manufacturing. Smart manufacturing is defined as the ability to solve existing and future problems via an open infrastructure – this allows solutions to be implemented at the speed of business, all while creating advantaged value.
The following is a list of actionable advice that can help in reducing operating expenses via smart manufacturing:

Capital Investments

In some instances, the best method of reducing operating expenses via smart manufacturing is to invest in capital improvements. Investing in equipment that speeds up the manufacturing process will improve in-line efficiencies, allowing for more daily output and lower long-term costs.
Also, equipment that uses less material may lower material costs. Remember, prior to making any capital investment, it is essential to conduct thorough research on the benefits versus the cost.

Improved Quality

By implementing better quality checks and systems, you may be  able to eliminate poor quality items and gain valuable quality intelligence which is a component of the overall manufacturing intelligence. Such tactics include root cause analysis to learn the original issue, corrective action implementation which allows you to fix the issue quickly and regular in-line audits which help find problems.
One of the outcomes of improving quality is to produce less scrap, thus helping with reducing operating expenses via smart manufacturing.

Lean Manufacturing

The idea behind lean manufacturing is to eliminate anything from the process that does not provide value to the customer. On the production floor, waste is measured by Overall Equipment Effectiveness (OEE) as well as Six Big Losses (Breakdowns, Reduced Speed, Small Stops, Production Rejects, Startup Rejects and Setup and Adjustments).
Lean manufacturing delivers the most direct path to reducing operating expenses via smart manufacturing by offering a range of tools and countermeasures to improve upon the aforementioned metrics.

Reduced Inventory Carrying Costs

Storing inventory for an extended period of time can result in significant costs for your company. You must consider the storage, insurance, and maintenance costs. Concepts like Just-In-Time (JIT) manufacturing can help limit the amount of inventory being carried.
According to the University of Cambridge, the idea behind JIT manufacturing is that you receive the components a few days prior to production and after the finished goods are assembled, they are shipped out within a few days. This simultaneously prevents overproduction and “out of stock” situations, which saves money on the inventory carrying end and the lost sales from not enough products in the market.

Reduction of Energy Consumption

For most manufacturers, energy is the first or second highest cost within the production process. With the continued rising costs of oil and gas, it’s important to examine your use of WAGES (or water, air, gas, electric, and steam) to see where you can cut back – without sacrificing quality, service or output.
In terms of smart manufacturing, you can make changes by checking all of your devices and machines to see if a part is outdated, or expending more energy than is cost-effective. From there, replacing the part will, long-term, increase your efficiency, and reduce overall energy consumption and operating costs. It’s the ability to share this information and make data-driven decisions that differentiates smart manufacturing from other processes.

Process Optimization

When looking at areas for reducing operating expenses via smart manufacturing, it’s essential to view ways for optimizing your process. From quoting, to sales orders and productions to costing and tracking, every step should be closely examined in terms of its contribution to ongoing efforts.
For example, integrating your production process and systems can help unify efforts and reduce operating costs. Having communication between accounting and your business process management system simplifies the transfer of data, and minimizes duplicate entry of information. This allows for everyone involved to focus on the right things, such as generating quotes and customer satisfaction.
Smart manufacturing unifies your efforts through data, and allows you to make real-time decisions when it’s needed most.

Theory of Constraints

The Theory of Constraints (TOC) determines the most important limiting factor (constraint) that blocks you from achieving a goal (like finding cost savings measures) and systematically improves the constraint to remove it as the limiting factor.
In industry terms, the constraint is referred to as a bottleneck which may not necessarily be equipment. Other bottlenecks may include a policy that is the recommended way of working but inefficient, the paradigm of ingrained habits or the marketplace which causes production capacity to exceed sales.
The power of implementing this school of thought  derives from the focus on a single goal with systematic improvements to help achieve that goal. When reducing operating expenses via smart manufacturing, the TOC inherently prioritizes and focuses improvement efforts on the area with the greatest cost impact: the bottleneck.

Reduce Operating Costs

Identifying issues in your manufacturing process and implementing some of the aforementioned production measures will help drive down costs, while fostering continuous improvement projects. Smart manufacturing facilitates the combined efforts of data and analysis to identify issues and implement the proper controls to mitigate (or eliminate) them from continuing to occur.
When reducing operating expenses via smart manufacturing, your process visibility will improve—allowing you to attack both large and small inefficiencies alike. Having the ability to look at the big picture will reveal the necessary costs that you can cut, as well as the improvements to implement.
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