By Ron Ketterling – President
Our Effective Ways to Reduce Manufacturing Costs series introduced you to the term supply chain simplification. As we discussed, supply chain simplification means to make the series of processes involved in supplying a product or service to customers less difficult or complex. The following methods will help manufacturing companies better manage their supply chain and, eventually, help lower costs.
When designing new products or re-evaluating older products, the products should be designed with standard parts. If there are too many different types of products or materials, a steady flow of the product cannot be arranged due to the variety and unpredictability of demand for that product. The key to designing products with high-volume, easy to find parts is to order parts ahead of time based on the company’s forecasts.
Rationalization also aids in the simplification of supply chain management. The most unusual (often low-profit) products are typically made with hard to find parts. By rationalizing these products away completely, your supply chain is instantly simplified.
Establishing Vendor/Partnerships and involving them on product design is another method in supply chain simplification. As part of the design team, vendors can recommend low-cost products that will be readily available for product creation. We frequently see too many vendors for the same products. While this may result in a few pennies in savings, the cost in purchasing and payables time may exceed this savings. When you factor in the extra requirements for put-away (and source traceability if you are in a regulated industry) and picking you are probably in a negative situation.
Overall, simplifying supply chain management can be beneficial in reducing manufacturing costs and improving the manufacturing process. Simplifying all parts of the process—including the planning, sourcing, production and delivery—not only saves costs, but it also improves efficiency and quality of products.
ERP systems support all cost reducing strategies and amplify cost savings. Download our whitepaper, ERP: Is High Return on Investment with Low Total Cost of Ownership Possible?, to learn more about the cost saving benefits of adding an ERP solution.