From 2020 through most of last year, manufacturers saw high growth among customers who often prioritized getting the goods they needed over the price of purchasing them. But the picture is very different in 2023. In most markets, inventory has caught up with demand while businesses and consumers alike have seen record increases in inflation and interest rates. As a result, manufacturers face greater pressure than ever to cut unnecessary expenses in order to maintain margins while competing for cost-conscious customers.
According to Boston Consulting Group (BCG), manufacturing businesses can reduce their conversion costs (i.e., the total sum of direct labor and factory overhead) by up to 25% by closing the “automation gap.” Solutions such as enterprise resource planning (ERP), material resource planning (MRP), manufacturing execution system (MES), and quality management software, when used to automate key manufacturing operations, can help to drive greater productivity, quality, inventory control, and resource management—leading to lower direct and indirect costs.
Strategies to Help Manufacturing Companies Save Costs
While there are several strategies for automating operations to help manufacturing companies save costs, they can generally be grouped into three areas of improvement: inventory and resource management, machine performance, and employee productivity.
- Reduce inventory costs. When consumer demand forecast data from the MRP software is shared with the inventory management system, manufacturers can use the knowledge to reduce their inventory levels by as much as 20%. Additionally, the automated tracking, reporting, and cost analysis of both materials and finished goods helps companies to optimize inventory levels and lower carrying costs.
- Avoid expediting expenses. The shared data from integrating MRP, ERP, and MES solutions can help companies to increase their accuracy in predicting raw material demand and avoid costly rush orders and last-minute purchases.
- Reduce inventory risk. Just-in-time (JIT) inventory optimization combined with access to real-time financial insights from integrated inventory management and ERP systems can reduce the risk of having inventory that either won’t sell or will lose value.
- Reduce reject rates, scrap, and waste. Real-time production and process monitoring data from sensors and smart machines enables the early detection of factors—such as speed, temperature, and vibration, among others—that can affect product quality and the use of materials. Armed with real-time insights to take corrective action sooner, manufacturers can lower costs by reducing defects by 65% to 95%, as well as cutting unnecessary scrap and waste.
- Reduce unplanned downtime costs. Machine performance variables captured by real-time production and process monitoring can also be used to enable predictive maintenance, scheduling repairs before equipment fails, and during times that minimize the impact on production. Manufacturers report that this approach can result in 35% to 45% reductions in downtime.
- Reduce direct machine costs. The preventative maintenance facilitated by real-time production and process monitoring not only extends the life of a machine; it also enables manufacturers to avoid the need for emergency repairs that often carry higher costs for parts and labor.
- Improve scheduling. Automated scheduling and dynamic rescheduling provided by MES software can help to ensure that the materials, resources, machinery, and employees best-suited are in place for a production run to avoid delays and maximize productivity.
- Reduce errors. Manual data entry errors can cost a lot to fix and cause operational issues. By automating data collection with real-time monitoring, manufacturers can cut the costs and operational issues created by manual data entry errors. Additionally, with accurate information automatically fed into ERP, MRP, MES, and other manufacturing software, the management team can improve the timeliness and accuracy of their decision-making.
- Control direct and indirect labor costs. Data captured from real-time production and process monitoring can inform teams on the shop floor about whether key product or process metrics are within allowed variances, so they can respond in real time as needed. It also enables managers and supervisors to more accurately track employee activities and time allocation, leading to more efficient use of resources.
Training: Beyond Automation
While automation can significantly help manufacturing companies save costs, it is also important to invest in a regular training program for shop floor workers. Doing so can help to reduce the costs associated with equipment repair and order rework, avoid on-the-job accidents, and improve productivity. Staying current on the latest production techniques is essential for maintaining a competitive edge, and it can increase workers’ job satisfaction, which reduces employee turnover and the associated costs of recruiting and onboarding replacements.
Despite facing economic headwinds in 2023, the manufacturing industry remains resilient. Increasingly, manufacturers are taking advantage of the automation provided by real-time monitoring, ERP, MRP, MES, and other software to improve inventory management, machine performance, and employee productivity. In doing so, they are cutting direct and indirect costs in ways that strengthen overall company performance and position them to compete in today’s market.