Part 4 of our Effective Ways to Reduce Manufacturing Costs article series
Several key components to cutting overhead costs in manufacturing is to produce standard products that can be built to-order without forecasts or inventory, and produce special products through mass-customization on-demand. In both approaches, once a confirmed order for products is received, products are built.
The results can be staggering. Inventory Carrying Costs can be eliminated (According to Investopedia, inventory carrying costs will generally total about 20% to 30% of its total inventory costs.), and procurement costs can be reduced with automatic, on-demand resupply. In theory, better responsiveness leads to more sales, and although not a manufacturing cost cutting measure, certainly a happy by-product.
Implementing lean production (read part 3 of our series) is one tool on the path to achieving build-to-order and mass customization. Other tools and processes such as rationalizing products and total cost measurements to quantify overhead costs will be covered in subsequent articles. However, the most important tool needed is a system to help you manage and analyze the data associated with each of these processes. Download our “How to Choose a Manufacturing System” guide to see if your current system will be a help or a hindrance to reducing your manufacturing costs.