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Optimizing Factory Layout for Efficiency and Cost Savings

April 19, 2023

 by David Collins III

woman inspecting equipment layout in factory

The layout of a factory is critical to its success. A poor factory layout design will lead to excess defects and waste and increased costs. On the other hand, a well-designed factory layout can increase efficiency, improve productivity, and contribute to a more desirable EBITDA multiple, often with minimal investment in new equipment or personnel.

Our experience shows that this is one of the most common impediments that factories have to efficient production. Many factories, especially but not only in China, tend to grow organically. As production shifts to a new product, greater demand, etc., the new factory lines and machines are put where there is room, not where it is optimal.

An extreme example was a factory in Shenzhen that was six stories. Production processes were located randomly and had products moved from the first floor to the third floor to the fourth floor, then back down to the second floor. The process consumed a lot of time and manpower resources and extended bottlenecks. The new floor plans our team developed cut hundreds of indirect workers.

Whether you're considering turning your factory around or striving for efficiency and cost savings, here are 4 key factors to consider to include in your factory layout plan.


1. Flow of Materials and Products

The flow of materials and products is important when designing a factory layout. The goal is to create a layout that minimizes the distance materials and products travel between each production stage. This can be achieved by arranging machines and workstations to create a smooth flow of materials and products.

For example, placing machines in the same production stage next to each other can reduce the distance that materials and products travel between each machine. Additionally, arranging workstations in a linear layout can help reduce the distance that materials and products travel.

Remember, time not spent changing the raw materials into finished goods is wasted time.


2. Space Utilization

Moreover, it’s crucial to be aware of 'Hidden Factories' within your facility – areas where inefficiencies, redundant processes, or underused resources exist without being immediately apparent. Optimizing the use of space is another important consideration when designing a factory layout. One way to do this is to use space-saving machines and equipment that can perform multiple functions. This helps reduce the number of machines and equipment needed, saving space and reducing costs. Additionally, recycling tools and equipment can be strategically placed throughout the factory’s entire layout, making it efficient for employees to conduct recycling.

Another way to optimize space utilization is to use vertical space. This can be achieved by using mezzanine floors or installing shelving and storage racks. By using vertical space, you can increase the amount of usable space in your factory without having to expand the footprint of the factory.

Chinese factory owners often tell our team they need a bigger factory to increase production. That is rarely the case. Re-organizing the line can drastically reduce space used while allowing greater production.


3. Employee Movement

Employee movement is another important consideration when designing a factory layout. The goal is to create a layout that minimizes the movement employees have to do between workstations and machines. This can be achieved by arranging workstations to create a logical flow of work.

For example, arranging workstations in a linear layout can help reduce the amount of movement employees have to do between workstations. Additionally, placing machines and equipment in a way that creates a smooth work-flow can also help reduce employee movement.


4. Safety

Safety is always a top priority in any factory. When designing a factory layout, it's important to consider the safety of employees and the equipment. This can be achieved by placing machines and equipment in a way that minimizes the risk of accidents.

For example, machines that produce loud noises or emit dangerous fumes should be placed in a separate area or enclosed in a soundproof or ventilated booth. Additionally, workstations should be designed to minimize the risk of repetitive strain injuries and other ergonomic issues.


Signs that your layout is inefficient:

  • Significant number of employees that move material between workstations. The closer the number of direct to indirect employees, the worse the situation is. A good ratio is 10 direct to indirect.
  • Production bottlenecks. If one process or workstation is backed up and slows the entire manufacturing process, it is a problem. 
  • Excessive downtime. A well-balanced line should have new products coming through on a regular basis. That basis can change per product type. A new golf ball may be made every 0.01 seconds and a new car every minute. However, each should be at a predictable pace. Long wait times show that there is something wrong with the line.

These signs are not all-inclusive. However, they cover the key things you should look for to understand the layout of your factory.

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Topics: Cost Reduction, Manufacturing Consulting, New Factory Setup

David Collins III

David Collins III

David was a Senior Strategy Consultant for Deloitte, served in Iraq as a Special Operations Civil Affairs soldier, and as a Governance Advisor to the Afghan Government with the Department of State. At CMC, David advises clients on strategy and investments.

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