Reduce production costs

Data is the key to clear cost transparency. Those who record it systematically and use it in a targeted manner will secure a decisive competitive advantage in the future.

Johannes Rauh, Senior Consultant

Challenge #1: Transparency

For many manufacturing companies, a lack of transparency is a key challenge. It is often unclear exactly how the specific manufacturing costs per product, department or production line come about or when they jeopardize the contribution margins. One reason for this is the inadequate collection and use of extensive process and material data. Without a sound database, clearly defined key figures and meaningful reporting, the actual cost picture is often not clear. If you currently lack company data, the use of modern IT systems offers great potential. By integrating your business processes and storing the generated data, ERP systems, for example, provide a solid basis for further analysis.

Cost breakdown analysis is a proven tool for identifying and evaluating cost components. Typically, production costs can be divided into fixed and variable components. Variable production costs include, for example, expenses for energy (e.g. glass or steel industry), materials (e.g. semiconductor and construction industry) and direct personnel (e.g. mechanical and plant engineering). Fixed costs include depreciation for buildings, machinery and equipment as well as costs for indirect personnel. Sectors with high fixed costs include the food and chemical industries, as these often have an advanced degree of automation and therefore disproportionately high costs for machinery and equipment.

Another approach to determining the actual production costs is the Total Cost of Ownership (TCO) approach. The aim of this method is to consider all costs over the entire product life cycle in order to draw a holistic picture of the cost structure.

Challenge #2: Inefficient processes

Once the most important cost drivers have been identified, the next step is to precisely analyze their causes and derive targeted measures to reduce costs. After all, identifying and eliminating inefficiencies is an ongoing task, especially in production.

In traditional mechanical engineering or the electrical industry, there are still many manual activities that are either not carried out efficiently, such as tightening the torque with a manual wrench, or are repeated unnecessarily (e.g. testing or adjustment). In the process industry, for example in the glass and pharmaceutical industries, rising costs are often caused by outdated systems or superfluous process steps.

These non-essential wastes, referred to in lean management by the Japanese word “muda”, need to be identified using a structured methodology. Rothbaum relies on proven methods such as value stream mapping, multi-moment mapping and process mining. By combining analog and digital analysis methods in particular, a holistic picture can be drawn of your processes and the waste that occurs within them. The existing knowledge of your employees plays a central role. Only by combining your team’s many years of expertise with best practices from our projects can we identify optimal solutions.

However, simply identifying waste is not enough. Only by defining clear measures, including an implementation roadmap, can you ensure that the optimizations are also measurably reflected in your manufacturing costs. In addition to automating manual activities (be careful with the profitability calculation, keyword TCO), you can use the versatile tools of lean management to realize effective improvements. Here, too, we rely on the active involvement of your employees. In special machine construction, for example, we have succeeded in reducing assembly costs per machine by up to 50% by switching from manual workshop production to synchronized flow assembly.

Challenge #3: Increased energy and material costs

Further difficulties arise in the manufacturing industry, particularly where automation as an optimization measure reaches its limits. Energy-intensive sectors, such as glass production or high-tech manufacturing in the semiconductor industry, are under considerable pressure due to the sharp rise in energy costs. In addition to the process efficiency already mentioned, there are other levers for making companies fit for the future. Through improved planning and control processes, supported by modern IT systems, plant utilization can be optimized in a targeted manner. As a result, idle times can be reduced and ramp-up or set-up processes minimized.

At our customer vandaglas, we were able to make potentials visible and improve a particularly energy-intensive work area in terms of operating time and costs. In combination with the company’s own photovoltaic system, additional savings can be achieved – for example through the targeted use of energy-intensive machines at times of high solar radiation. This not only reduces costs, but also increases energy efficiency.

Energy-intensive industries continue to face common challenges, partly due to the rise in material costs. The prices of scarce raw materials such as rare earths, which are indispensable in the semiconductor industry, have risen. Supply bottlenecks as a result of global crises, such as the blockade of the Suez Canal, are exacerbating the situation. It is therefore essential to focus specifically on optimizing material costs. In addition to alternative materials or successful negotiations in purchasing, it is worth taking a closer look at production. One lever for optimizing the use of resources is the continuous reduction of waste, which means that materials that are already expensive can only be reused with additional effort or even have to be disposed of completely.

Waste can be minimized with error prevention measures such as “Poka Yoke” from lean management or statistical process control (SPC). There is also further potential for savings in procurement and production control: strategic supplier selection and just-in-time deliveries can reduce stock levels in a targeted manner. This reduces warehousing costs and working capital.

Reducing waste in production is not a one-off project, but an ongoing process. Continuous improvement must therefore be thought of as long-term and sustainable.

Philipp Kappus, Senior Manager

Challenge #4: Keeping an eye on the magic triangle

It goes without saying that the customer’s interests must not be lost sight of in all measures to increase efficiency. The satisfaction of your customers is traditionally described using the so-called magic triangle of cost, quality and delivery time. At Rothbaum, we supplement this model with two additional parameters: Flexibility and sustainability. All five factors interact directly with each other. Higher quality or delivery time requirements often lead to rising costs – conversely, a pure focus on cost reduction can be at the expense of quality or service. Our aim is to reduce your production costs without having a negative impact on any of the other factors.

At the same time, however, excessive demands can also have a negative impact on your manufacturing costs. Excessive quality controls in areas where hardly any errors occur cause unnecessary costs – as do over-optimized product designs with tolerances that are too tight, for example, or expensive materials that are hardly noticed by the customer. Optimized gap dimensions in the automotive industry are a well-known example. Conscious decisions to reduce the scope of services, reduce controls or use less high-quality materials can lead to major savings.

Summary

To summarize, the first step in sustainably reducing production costs is to establish a transparent data basis. On this basis, you can then identify the biggest cost drivers, analyze weak points in a targeted manner and develop effective measures. By optimally adapting to your customers’ needs, you will then be able to achieve sustainable business success. If you are looking for support to set up your production in a cost-efficient and future-oriented way, please contact us!