Today’s manufacturing intelligence is different than it was even few years ago. With the rapid growth and technological advancements of the Internet of Things, Industrial Internet of Things (IIoT), Industry 4.0, the Connected Enterprise, etc.—where should a company start?

It’s not rocket science, but optimizing manufacturing costs is a journey, and requires a deep understanding of manufacturing operations and their alignment and balance in relationship to the supply chain. When considering manufacturing cost optimization, manufacturers today must understand that traditional approaches will not work. It’s vitally important to include raw material costs, warehouse management, inventory reduction and control, labor management, material flow management (including genealogy and traceability), quality, energy usage and maintenance. In addition to production on the plant floor, substantial amounts of data must also be collected throughout.

With a focus on visibility and control, manufacturers can optimize their manufacturing costs and do so at the individual site level and/or globally. An effective cost optimization program should have five areas of focus.

Inventory carrying costs represent a significant impact to real estate and cash flow

As an example, an organization was pulling inventory from its warehouse, often directly off the shipping dock to try to keep up with production, utilizing up to 10 fork trucks to feed the line. At some points during the week the warehouse was overrun, and at others it was empty, grinding production to a halt.

This problem could be solved using a creative and agile approach, introducing four automated guided vehicles delivering just-in-time to a line-side inventory, enabling the line operators to maintain maximum production capacity with significantly more manageable warehousing processes. By doing this it would reduce overproduction, underproduction and excess storage, and have significant positive impacts on overall manufacturing costs.

Optimize the entire process holistically and not its parts individually

Changes made to part of a process may improve the metrics associated with that specific process and stress out another, leading to a reduction in optimal performance. Think about the interdependencies of one cell to another and the entire line.

For example, a client wanted to better understand the accuracy of its overall equipment effectiveness (OEE) related to its packaging equipment. A company could develop a scope of work on some equipment at the end of the line that provides data used to start identifying bottlenecks, undefined work stoppages and quality/scrap issues. By making small adjustments to these pieces of equipment that client would see improvements in the packaging area, but negative performance up line. To curb this one should immediately stop the advancement of the packaging OEE initiative and re-develop the scope of work to include all equipment on the line. The net result would be an overall increase in line OEE from 45% to 68% in just 90 days.

Manage energy consumption

Too often, energy as an ingredient in the cost of operations is overlooked. For example, a manufacturer develops a single pane of glass visualization tool set that combines energy and manufacturing data. In order to maximize energy efficiency on the line and correlate data back to a reduction of overall manufacturing cost, a company could start with electricity and eventually advance to include compressed air, water and chilled media. Doing this would decrease energy spend by 25% and lead to continuous improvement activities on production equipment and overall line equipment effectiveness.

Energy is likely the second highest cost, behind labor, for a company. Consider how water, air, gas, electricity and steam (WAGES) are purchased and used in the manufacturing process. What would happen if a company slowed down or sped up a specific operation? Would it reduce energy consumption and the cost of energy as an ingredient of what is being produced? Corporate energy management should be a significant part of an overall sustainability program(s). If a company is not monitoring and managing its WAGES through that visibility, it will likely be paying too much.

Optimize workforce

Providing advanced production scheduling will enable a company to better calibrate the demand of its operators to production decisions. Reducing overtime and matching skills to tasks can be major sources of cost reduction.

Lower the cost of regulatory compliance and quality

Enterprise quality intelligence enables the avoidance of production mistakes, while root-cause analysis drives quicker corrective actions and proactively drives down manufacturing costs.

These steps, although they seem simple, will drastically shave costs for a company and allow for production lines to continue moving and therefore earning a profit for the company.