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The call for manufacturing cost cutting never ends. If you’ve found that the costs of inputs, labor and transportation have been squeezed and squeezed again, it’s time to look at other ways to reduce direct and indirect manufacturing costs.
Some solutions are closer than you may think.
The directive to “reduce manufacturing costs” may not require any cuts at all, according to Charlie Covert, vice president of UPS Customer Solutions for customers in industrial manufacturing and industrial distribution. “Rather than zeroing-in on pricing or service levels, start by focusing on tactics or processes you may have set once and then forgotten about.”
Covert suggests posing a series of questions to get the evaluation going: “How have your customer service requirements or sales channels changed? How has your customer behavior changed? Do you have internal processes that are no longer needed? Has your physical footprint, transportation needs or network changed?”
Digital transformation initiatives have also created changes that need to be addressed. Says Covert, “Generally speaking, if your supply chain has expanded, contracted or gotten ‘smarter,’ it’s time to reassess the ways you’re moving material and goods through your supply chain.”
You can’t improve what you can’t see. Unfortunately, without technology that sees around typically hidden corners of your supply chain, you’ll miss opportunities to tighten things up. Says Covert, “With a better view of what’s coming in, what’s inventoried and what’s going out, you’re better able to optimize inventory and improve throughput. It’s hard to find two more powerful ways to reduce manufacturing overhead caused by idle or underutilized labor.”
Covert adds that visibility technology can also help trace inefficiencies back to their root causes, especially when the inefficiency may be disguised as something else entirely. He asks, “Is your workforce often caught off-guard by the arrival or makeup of inbound shipments? On the surface it may look like a scheduling issue but not necessarily. A product like UPS Quantum View can help you figure out how to improve that.”
Another hard-to-pinpoint problem is when cycle times are improving but the rate of dead stock is going up. “A high rate of unusable stock can often be a sign of less than optimal returns and reverse logistics processes,” Covert says. “Similarly, a high rate of returns might send you scrambling to meet with product engineers when the damage could have been caused by improper packaging. A robust returns program would capture the specific reason for returns.”
One high impact way to reduce manufacturing costs typically requires the longest lead time: outsourcing. In this era of digital transformation, having someone else pick up the tab for new equipment, systems integrations, training and depreciation can be pretty appealing. But is outsourcing right for everyone?
UPS’s Covert says usually, but with caveats. “A company may or may not decide not to outsource the manufacture of their products, but think about related services you offer to stay competitive like parts distribution, or MRO, or returns. Could a third-party do the job better, faster or more cost-efficiently in the long run? This can help shift fixed capital to a variable expense better matched with revenue.”
Covert lists other third-party services that can help to reduce or reclassify manufacturing investment expense. “For example,” he says, “if you’re having trouble finding warehouse or distribution space where you need it, UPS manages hundreds of facilities worldwide that can help relieve strain on your supply chain and improve service levels. Services range from storage through inventory and order management, and even post-sales services.”
Specialized services from third-parties can also drive dramatic shifts in how manufacturing costs are managed and reported. For example, a spot freight service like Coyote Logistics can secure hard-to-find LTL and TL capacity for you. Says Covert, “You might also look at having your logistics partner provide dedicated contract carriage services. It’s a big step but in in the final analysis, eliminating the hard and soft costs associated with fleet management might actually reduce your overall transportation costs.”
UPS Customer Solutions can help you navigate your options. Learn more.
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