Helping You Manage Your Supply Chain More Effectively!
“It costs too much!”
Why does it cost too much and take too long and cost too much to manufacture our products?
Let’s look at some of the typical activities in a manufacturing business. The material cost on the invoice is only a portion of the total business costs. Activities such as preparing quotes, receiving inspection, reworking materials, returning materials, premium freight or 100 percent inspection process add costs and/or slow down the manufacturing process.
Look at your company’s flexibility or responsiveness your speed. Often the time it takes to place an order, build that order, and ship it to the customer is disproportionate to the total run time for the product. The time may be eaten up by backlogs in order entry, engineering, credit approval, waiting for materials to be ordered and received, and a shopping list of other time-gobblers.
Reviewing these activities, you’ll find that they can be divided into two groups – adding value or adding cost. Of course, the value-adding activities are mandatory. Non-value adding activities may not be. This is where the opportunities for reducing costs and increasing speed are found. The quickest way to obtain these benefits is to review the non-value adding activities, identify the unnecessary activities and eliminate them.
These are activities that occur on a regular basis and have become institutionalized. To lower costs and increase speed, we must challenge these unnecessary activities.
The next step is to look at the remaining non-value adding activities, the necessary ones, and find ways to make them unnecessary. Then we can begin to eliminate them. Obviously, if you could eliminate 10 percent of activities, you’d immediately achieve lower costs and quicker response times. Sounds simple, but putting out a memo stopping these activities is not the solution. It requires changing the way we do business.
For example, we have receiving inspection because past experience has shown that we receive out-of-spec materials from suppliers. Stopping receiving inspection, which is a non-value adding activity, does not eliminate the quality problems with suppliers. The focus must be on the root causes of the non-value adding activities. In this example, you must find out why the supplier is shipping you out-of-spec material, fix that problem and therefore have this currently necessary activity become unnecessary. Finding the root causes and fixing them is the key to changing necessary to unnecessary and thereby reducing costs and increasing speed.
Examples of other areas in which to look for opportunities to cut costs and increase speed are:
1)Is there an effective reconciliation of sales, manufacturing, and financial plans starting with the Sales & Operations Planning process and continuing through the Master Scheduling process?
2)Is there an analysis method to recognize the constraints of demonstrated capacity by products, work centers, or critical resources?
3)Is there an ongoing process to identify the unnecessary activities in the business and eliminate them?
The Partners for Excellence Assessment Checklist has a detailed breakdown of the areas in which to look for non-value adding activities. To order a copy of this checklist, call us at 615-221-2196.
D. R. Rice Company
9326 Lake Shore Drive • Brentwood, TN 37027 • 615-221-2196 • firstname.lastname@example.org