As companies become more successful, they tend to grow their business by adding parts and vendors. However, every new part or new vendor adds more complexity to the manufacturing process — which in turn adds more costs.
Complexity can come in many forms:
• Duplicate or conflicting parts
• Excessive contracts
• Expanding overhead
To help reduce internal manufacturing complexity, companies need to streamline their portfolios and simplify their product lines. This starts with consolidating vendors and producing the right parts that can be used across multiple product groups.
Every new part or variant added to a company’s portfolio increases the cost of complexity, which must eventually be offset by price increases or cost reductions. Eventually, the company must decide if the incremental cost of adding new products, parts, or vendors is worth the potential impact on its margins.
Start with the data
Manufacturers can use data analytics in conjunction with the 80/20 rule to determine component overlaps and standardization opportunities. Data analytics can help companies understand true product profitability in relation to overall operations. Companies can then develop successful strategies to keep complexity and costs under control.
Most of the company data to evaluate for product profitability is easily accessible, such as sales and purchase transactions. However, many companies fail to use this data because they lack the framework to properly analyze it and derive actionable insight from that analysis. Furthermore, handling the complexities of large data is nearly impossible without having a good grasp of analytics tools and data science.
The best way to analyze these large amounts of product and customer data is to use the Pareto Principle, aka the 80/20 rule, by comparing products and customers based on profit and cost data.
Streamline your portfolio and simplify the product line
To reduce internal complexity, focus on streamlining your portfolio and simplifying the product line. This starts with increasing reuse/standardization of components and consolidating the number of suppliers for certain product groups.
You can use data analytics and the 80/20 rule to identify component overlaps and standardization opportunities. This information can help you re-engineer products to reduce costs.
Companies can also introduce profitability early in the product design and development stage. The number of suppliers can be reduced through greater collaboration with existing suppliers, as well as more outsourcing of less strategic products and components.
Processes can be put into place to understand similarities among products and components and to increase, reuse, and standardize parts and vendors. The fastest way to reduce manufacturing costs is to cut your overall number of parts. Fewer parts means:
• Fewer purchases
• Fewer contacts
• Less inventory
• Less handling
• Shorter process and development times
• Shorter engineering and testing cycles
Reducing the number of vendors and components simplifies all activities related to a product — from its design to its final day of use.
About 70% of all manufacturing costs originate at the design stage. By simplifying manufacturing early in the process, with fewer vendors and parts, companies can focus on quality and time to market. In addition, reducing the number of vendors and parts can lead to more customers and greater revenue.
If you’d like to know more about how to simplify your manufacturing processes, starting with ridding yourself of extra vendors and parts, reach out to me below or or follow the author link.
Author: Patrick Mosimann