Reduce Manufacturing Costs Using Lean Manufacturing Tools
Ways our most successful clients have stayed successful – by reducing manufacturing costs.
Adopting lean manufacturing principles can reduce manufacturing costs. How? By increasing labor productivity, cutting production throughput times, reducing inventories, cutting errors and scrap by as much as half.
What is Lean Manufacturing?
It is a simple and effective way of conducting business processes. It characterizes all activities as either value-added or non-value-added (waste).
What is waste?
Waste is defined as any activity that does not add value from the customer’s perspective. According to research conducted by the Lean Enterprise Research Centre (LERC), 60% of production activities in a manufacturing operation are waste; adding no value for the customer. The good news is that every company has an opportunity to cut manufacturing costs using lean manufacturing techniques and other best practices. This article from Entepreneur.com shows how small changes can produce big results in labor reduction, raw materials, and in the call center. Think what reducing your production time or cost by even half of that would do to your bottom line?
Cost saved drops directly to the bottom line.
Example, assume your product costs are split evenly between raw material, labor and overhead. A 30% reduction in labor means your product cost decreased by 10% (.3 X 33.33). That might be a 10% increase (or more) in your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Safe to say your controller would welcome a 10% improvement in bottom line due to increased efficiencies!
What would Lean Manufacturing do to your ability to produce finished goods?
If labor is your bottle-neck, which is likely due to today’s tight marketplace, a 30% reduction in labor means you can produce one-third more finished goods. Or, you can apply that labor to another product that is in tight supply. No matter your scenario, Lean has benefits for labor, management and customers.
A great place to start implementing lean production is by understanding the forms of waste (waiting, transportation, inventory, motion, overproduction, over-processing, defects, and wasting talent) and how to eliminate them.
Lean Terms & Definitions
Check this list of Lean Terms and Definitions to get a fast primer on Lean. These terms describe the “tools” Lean uses to eliminate waste, improve your manufacturing operations, and thereby reduce manufacturing costs. Two of my favorites from The Toyota Way are “Genchi Genbutsu” (Go and See for yourself) and “Plan, Do, Check, Act” (PDCA a four-step management method for continuous improvement). Don’t let the Japanese terms scare you, they are short-hand from concepts. The link above gives very brief, manageable definitions to help you get a framework to learn.
Of course, one of our goals is to make sure we have a good understanding of how an ERP / MRP system can fit into a lean manufacturing organization. We can mirror your lean processes in software systems, to support reducing waste and manufacturing costs in the process.
We always want our clients to be better and more profitable at what they do. Adding BASM as your partner, it’s a win for everyone and we’ve done our job.
Download our article on Lean Manufacturing Insights which covers the principles of using lean production to reduce manufacturing costs. It provides more detail on the forms of waste and information on several of the lean tools.