All businesses want to maximize their profits. Profits increase through reducing costs, rising prices, and expanding volume. As manufacturing consultants, we do not advise our clients on their prices. However, we can aid by expanding volume and reducing costs.
On a simplistic level, there is a choice between lower overall costs and increasing productivity. We can often help clients reduce labor costs or redirect the labor and productive capacity to increase production. There are a number of methods to make these changes, improve overall operations, and increase profitability.
Manufacturing consultants, like CMC, assist clients in maximizing their profits through five broad methods.
1. Process Optimization
Manufacturing consultants often optimize production processes to maximize efficiency and minimize waste. This can involve analyzing the flow of materials, identifying bottlenecks, and implementing lean manufacturing principles to streamline operations and reduce costs.
Process optimization is our typical first approach to any project. Streamline the process to reduce manufacturing waste, time and effort which saves money and improves productivity. The added benefit is that process improvement usually improves cash flow as raw materials can move quickly from coming to shipping out. The cost of holding inventory is typically 25% of the cost of the inventory, and less inventory equals lower costs.
It is not uncommon for our team to arrive at a factory and see bottlenecks in production with excessive work in progress (WIP). WIP is a clear sign of an inefficient line. Reducing WIP will improve production speed (more products out the door) and reduce the chances of damage and the need for rework (saving money).
2. Supply Chain Management
Consultants help manufacturers optimize their supply chain by improving inventory management, reducing lead times, and running supplier improvement programs. By optimizing the supply chain, companies can minimize inventory holding costs, improve delivery times, and reduce the risk of disruptions.
Many companies struggled with supply chain management before major COVID-related disruptions. Optimizing the supply chain improves profitability by decreasing excess inventory and overall cost. Many factories waste space on excessive inventories, and our teams can cut inventory by half. The space can be utilized for increased production or for another company to use.
3. Cost Reduction Strategies
Consultants assist manufacturers in identifying cost-reduction opportunities across various aspects of the business. This may involve analyzing raw material costs, labor expenses, overhead costs and factory layout optimization. By identifying areas of inefficiency and implementing cost-saving measures, companies can improve their profitability.
Many factories, especially in China, have high overhead costs due to excessive amounts of indirect labor. Examples of indirect jobs are material handling and quality inspection. Material handling is a non-value-added job and can be reduced through process optimization. Quality inspection should be part of every operator’s job, not someone standing over their shoulder. These improvements require documentation, planning and proper execution to be effective.
4. Productivity Enhancement
Manufacturing consultants focus on improving productivity by analyzing production metrics, identifying areas for improvement, and implementing strategies to enhance workforce efficiency. This can involve training programs, performance measurement systems, and implementing advanced technologies to automate processes.
Value-added time is a crucial measurement for production efficiency, and value-added time is the time an operator is engaged in an activity that improves the product. Material handling does not improve a product; tightening a bolt or assembling a piece enhances the product.
5. Market Expansion and Diversification through New Product Introduction (NPI)
Manufacturing consultants do not help factories find new markets for their products. It is not our expertise. We understand manufacturing, not the products of the factories. However, manufacturing consultants can assist with new product introduction (NPI), which is a vital aspect of market expansion and diversification. It has been our experience that most companies struggle with NPI. Setting up or adapting an existing line for a new product is a complex process that should be handled properly to reduce delays and cost overruns.
The new process must be planned out in advance, adequately documented, and tested before moving forward. Otherwise, scrap rates will be much higher, and there will likely be delays in moving the product to market. Manufacturing consultants can improve productivity and reduce costs to make the new product as profitable as possible.
These methods affect the core of the manufacturing business itself: making new products to sell to customers. As long as customers and markets exist, manufacturing improvements will always lead to more profitable operations.
