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How CMC Has Implemented Cost Control Strategies for Factories [With Examples]

October 10, 2022

 by David Collins III

cost control for factory

China Manufacturing Consultants (and its parent company Manufacturing Transformation Group) focuses on the fundamentals of manufacturing: cost, quality, delivery, safety, and morale. While these are all interrelated (high quality is more effective than poor quality, a safe working place creates higher morale and reduces costs, etc.), there are specific processes and mechanisms we use to control costs during manufacturing.

Cost Reduction in Manufacturing

The major cost control strategies focus on material and time. Reducing scrap and waste means that more material is used in the finished product. Reducing the cycle time and product turnaround improves cash flow and moves products more quickly and efficiently. The strategies shown here are proven methods for cost reduction in manufacturing.

Material Cost Control

There are two principal ways to control material costs: incoming raw materials and application of materials. Each is important, and combined can save factories a large amount on their material costs.

1. Inventory Control

First is inventory control. Inventory control is understanding what is needed, how much is in storage, and how quickly the material moves through production. Proper labelling and planning prevent materials from degrading overtime and improve overall cash flow.

At Earthrated’s supplier, CMC rearranged the entire warehouse and implemented labelling and standard operating procedures (SOPs). Material turnaround dropped from 38.8 days to 14 days, and 50% less space was needed. The factory saved more than $1,000,000 from these changes.

2. Usage of Materials

Second is the usage of materials. Using fewer materials to produce the same products is best way to control costs. How this works is raising the efficiency of raw materials' application to the end product.

Paint provides a great example of material cost control. CMC had a client with 80% scrap paint. Only 20% of the paint sprayed on the product stayed there. The rest was sprayed on the wall or around the product. The reason for this poor result is that the conveyor did not consistently stop at the correct spot to be painted by the nozzles. CMC remedied the situation by adding a simple encoder and straight holder for the product and nozzle, so each product stopped at the correct location to be sprayed. Scrap was now 35% instead of 80% and saved the client $558,000 annually.

Time Control

Time is money, as the old saying goes. Trite but true, especially in manufacturing. Controlling time controls costs. CMC uses several strategies to control costs throughout the manufacturing facility.

1. 5S Manufacturing Operations

The first strategy to reduce cost is 5S manufacturing operations. Ensuring that everything is in the right place and that areas are clear of clutter reduces time spent looking for the right piece of equipment or material. Time can be used where it has the most value.

2. Process Changes

The next strategy is to change the process to remove bottlenecks and downtime. When a product is waiting between stations, there is no value added and work-in-progress (WIP) plies up. At Fontaine trailers in Alabama, the MTG team reorganized the line to reduce the WIP. The factory improved capacity from 1.1 units per shift to 2.3 units per shift. That is without increasing labor, equipment, or materials.

3. Smart Automation

Another strategy is smart automation. Notice that we use the term “smart” rather than just automation. Automation is a tool, not a solution in and of itself. Analyzing the manufacturing process, CMC finds areas where a manual operation is better and more cost-effectively completed by automation than a person.

A good example of this situation was Earthrated. CMC saw that the factory wasted considerable time and effort manually sealing the bags and taking them to the packing line. We recommended that the factory automate the sealing process directly to the packing line. This significantly reduced the time needed for each unit and freed labor to work on the more labor-intensive aspects of production.

The Bottom Line

Cost control is vital to any manufacturing operation. The strategies shown here can, if properly implemented, help control costs and improve overall productivity. Most can be accomplished without additional expenditures in capital equipment or other tools.

If you are having challenges with controlling costs or would like to talk through one or more of these strategies, please click the contact us and let us know.

Interested in implementing process improvement methodologies for cost control and more? Click below.

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Topics: Cost Reduction, Manufacturing Consulting, Manufacturing In China, Process Improvement

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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