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The Hidden Factory: Identifying and Eliminating Costly Manufacturing Processes

January 18, 2024

 by David Collins III

iceberg diagram depicting the hidden factory, with the factors contributing to the hidden factory

Efficiency and cost-effectiveness are paramount in manufacturing. Manufacturers invest resources to optimize their processes to remain competitive. Based on our experience, we have found a number of indicators that may not be accounted which hinder productivity and increase costs. In this blog, we'll explore the concept of Hidden Factories and how to identify and eliminate costly manufacturing processes.

The Hidden Factory Concept

The Hidden Factory describes inefficiencies and waste within manufacturing processes that often go unnoticed. It often contributes to the deterioration of your factory's EBITDA and EBITDA multiple. In our daily lives, an example would be subscription services you have but don’t use often. These slowly but surely amount in cost while providing no benefit. They are also often hidden well enough that you barely notice. In the context of Hidden Factories, these inefficiencies can arise when factories face the following problems:

  • Defects and Rework: When products don't meet quality standards, they require rework or even scrapping, consuming additional resources and time.
  • Excessive Inventory: Maintaining excess inventory ties up capital and storage space, leading to increased carrying costs. Based on our experience, there are various inventory reduction strategies you can implement to reduce excessive inventory costs. 
  • Unplanned Downtime: Unscheduled machine breakdowns or maintenance disrupts production schedules and cause delays.
  • Inefficient Layouts: Poor facility layouts leads to excessive material handling, longer lead times, and increased labor costs.
  • Underutilized Workforce: Inefficient labor allocation or inadequate training results in reduced workforce productivity.
  • Overprocessing: Spending resources on features or processes that do not add value to the final product are costly and wasteful.

How to Reveal The Hidden Factory

After you’ve understood the Hidden Factory concept, the next step is to assess your current manufacturing processes. We have deployed various techniques to identify the underlying issues contributing to the costly manufacturing processes:

  • Data Analysis: Analyze your production data to identify historical trends, recurring issues, and bottlenecks. By identifying and avoiding defects, rework, or machine downtime patterns, you can find the root cause of the costly manufacturing processes.
  • Value Stream Mapping: Conduct value stream mapping exercises to visualize the production process. This helps identify areas with excessive waiting times, inventory, or non-value-added activities.
  • Quality Control: Implement rigorous quality control measures to detect defects early in production. Identifying the defects early on reduces the need to rework or scrape products with issues.
  • Employee Feedback: Encourage feedback and engagement from employees involved in the manufacturing process. They often have valuable insights into inefficiencies and can provide suggestions for improvement. Additionally, they are the most familiar with the production process details, so their insights give you an inside look at what’s working and what’s not.
  • Benchmarking: Compare your manufacturing processes and performance metrics with industry benchmarks to identify areas where you lag. Subsequently, you can improve in a similar trend and close the gap between your original state and the industry benchmark. 
  • Root Cause Analysis: When issues arise, conduct a root cause analysis to determine the underlying reasons for defects or failures. The root cause analysis will give you a view of what needs to be changed foundationally, where changes will then spread across the entire production process.

These are the tools that MTG uses in our assessment. Whether you perform these actions with your teams or use our expertise, you can reveal the Hidden Factory issues that drive up costs and remove profitability. Having a 3rd party provide an assessment and analysis is also helpful as they will see things you may have missed, as you are familiar with it. 

How To Cut Your Factory Costs Through Quality Improvement Activities eBook Download

How to Fix The Hidden Factory

After identifying the costly processes behind your Hidden Factory, the next step is to start planning for and eliminating those issues. Here are a few ways you can do so:

  • Facility Layout: Reconfiguring facility layouts can significantly improve manufacturing efficiency. You can design a layout that minimizes material handling and streamlines movement. This involves strategically placing equipment and workstations to facilitate smoother production processes, decrease cycle times, and reduce physical strain on employees.
  • Automation: Leveraging automation in manufacturing streamlines production by introducing robotics for repetitive tasks, reducing errors, and speeding up operations. Automation is effective for high volume CPG producers. Intelligent technologies like IoT enable real-time monitoring, minimizing downtime. This shift reduces manual labor and boosts efficiency, leading to significant cost savings and enhanced market competitiveness. 
  • Implement Continuous Improvement: Foster a culture of continuous improvement within your organization. Encourage employees to suggest and implement process enhancements periodically. This applies to all teams across the factory and can be done once every few months.
  • Lean Principles: Embracing lean manufacturing principles involves streamlining production by minimizing waste, optimizing workflows, and eliminating unnecessary steps. This approach focuses on increasing efficiency and value for the factory by systematically reducing non-value-added activities, which leads to lower costs, faster production times, and improved product quality. You can hire a lean manufacturing consultant to help turn your factory around. 
  • Supply Chain Optimization: Collaborate closely with suppliers to streamline the supply chain so you can reduce lead times and minimize excess inventory. This process includes synchronizing procurement with production demands, leveraging just-in-time inventory practices, and enhancing communication for better forecasting. 
  • Quality Control Systems: Implementing robust quality control systems is critical to early defect detection, preventing costly rework and waste. By integrating advanced monitoring and testing protocols throughout the production process, factories can keep product consistency and reliability, which reduces the frequency and cost of repairs or replacements.
  • Employee Training: Enhancing workforce skills through comprehensive training is crucial for efficiency. Equipping employees with the latest techniques and knowledge enables them to perform tasks more effectively and adapt to new technologies. This improves productivity and reduces errors and inefficiencies, contributing to cost savings and improved process quality.
  • Performance Metrics: Setting key performance indicators (KPIs) is vital for tracking manufacturing progress and ensuring that improvements are sustained over time. These metrics could include production cycle times, defect rates, or supplier performance. By regularly monitoring these KPIs, manufacturers can gain insights into their operations, identify areas for improvement, and make data-driven decisions.

Strategic Steps to Unveiling and Tackling the Hidden Factory

Your actions and the order in which you take them highly depend on the assessment's findings. While running to one or the other might be tempting, a careful evaluation will show what will have the most immediate impact, even if it is not the biggest problem. Try implementing the change that will drive a quick win to initiate momentum.

Identifying and eliminating costly manufacturing processes is essential for improving efficiency, reducing waste, and increasing profitability. With the latest manufacturing trends pointing to uncertainty and volatility, uncovering the Hidden Factory within your organization can address inefficiencies and enhances your competitive edge. Continuous improvement, data-driven analysis, and a commitment to optimizing processes are critical to a successful journey toward cost-effective manufacturing.

Have you ever found a Hidden Factory in your manufacturing facility? How did you identify it? Let us know in the comments below.

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Topics: Process Improvement, PE Manufacturing

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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