Survival in a down economy

January 10, 2002
By: Frank Fenton

You can do many things during a downturn to improve your operation for the long haul. Look your business over top to bottom -- you'll find them.

We manufacturers traditionally respond to reduced demand in the marketplace by cutting our work forces, tightening our expenses, and cutting capital budgets. We try to do this and still preserve enough of our infrastructure to recover quickly when the market improves.

These measures are necessary, but many ways to save money in good times and bad are overlooked. The trouble is, many of these indirect costs are difficult to cut in bad times. Let's look at some of the functions that add no value but that all manufacturers must do, from quotation to invoice.

Computers: The Manager's Friend

The many steps of quoting, requoting, entering the order, generating the shop orders, documenting the quality test information, and, finally, invoicing-plus the shop reporting process, inventory control, order costing, and accounting-can be simplified greatly by a good, modern computer system. Such a system can save time by providing timely information to the sales staff and directly to the customer through Internet links. Customers can check their orders by themselves at any time. Projected delivery dates, freight carrier, and document numbers, as well as product traceability documents such as material test reports, can be provided on a secure, password-protected Web site system.

Such systems also can show inventory status and allow online request for quotations (RFQs) and even online order placement, which further helps reduce sales and customer service activity. Modern software systems often have a Web site module or link that updates this information continually.

Such a system can provide more than indirect labor savings in areas such as sales, accounting, engineering, and scheduling. By providing detailed, immediate information on production efficiency and variances in material price and usage, many problems can be fixed before the job is done instead of being discussed only at the end of the month's close-when it is too late to do anything about it.

Such timely information can make the whole operation more efficient by pointing out processes that need to be improved and those that are not included properly in the company's current pricing structure but can be in future jobs. A modern cost system can point out quickly which cost estimates or standards are grossly wrong because of inaccurate estimating, changes in the process, or changes in the materials that are used.

Some of these modern systems run on PC-based LAN systems, and many are Windows®-based systems that can interface easily with other popular software programs for generating reports or transferring data.

A Look at Purchasing

Your purchasing department is another area to look for cost reductions.

Many companies use purchasing systems that are very labor-intensive. Some traditional purchasing systems can be modified to allow suppliers to take on much of the activity.

A traditional system usually starts with a requisition that, once duly authorized, is sourced and bought by a purchasing agent, with copies going to accounting, receiving, the originator, and other parties. The item then is delivered to the receiving department, the package is opened, paperwork is pulled, and the item then is taken to the stockroom to be placed on the shelf. Such systems can be replaced, at least in part, by a contract or agreement with a local distributor of a specific commodity-say, drive components, welding supplies, or fasteners.

Distributors usually can be persuaded to set up the stock, take a weekly inventory, and replenish the stock on a weekly basis. The indirect savings to the manufacturer can be felt in several areas, including purchasing, expediting, receiving, and the stockroom.

Savings to the distributor come in areas such as quoting, order entry, and packaging. A distributor also has a better chance to get other business, because its personnel are on your site often, and convenience may stimulate other sales. With proper controls in place, this system can save much in indirect, non-value-added labor for both the buyer and seller.

Material Handling

Another important indirect cost area is material handling.

Look at how many times your product must be moved within the shop until it is completed. All of that movement results in additional indirect labor and the potential for product damage and more in-process inventory. The workcell concept is useful here, in which ideally the product starts as raw material or components and leaves the workcell packaged and ready for sale. Even if the ideal cannot be achieved, operations many times can be combined, eliminating one or more product moves.

Also, by asking questions and studying the situation carefully, you can eliminate many operations by modifying upstream manufacturing operations. Most times, a motivated work force is the best source of ideas for combining or eliminating operations.

When you are trying to eliminate steps by modifying operations, look at blending deburring and finishing operations, modifying the raw material used in the product, or possibly automating your production in some manner. You might also consider incorporating steps into the previous operation. For instance, packaging operations many times are incorporated best with the last operation when the part is clean and ready for the customer.

There are endless ways to cut costs and streamline operations. The best attitude is to question everything, including all direct and indirect operations and try to find a way to streamline or, better yet, eliminate or integrate, with another operation.

Even better, motivate your workers to question everything, because they probably have the best answers. The most important thing is to get started. Your long-term survival is at stake.

Frank Fenton

Contributing Writer
Rath Manufacturing Co.
2505 Foster Avenue
Janesville, WI 53547-0389
Phone: 800-367-7284
Fax: 608-754-0889
Mr. Fenton joined Rath Manufacturing in 1992. He has a bachelor of science degree in electrical engineering from Kansas State University. His experience includes many years of technical and management experience, primarily in manufacture of equipment for the process industry. Rath Manufacturing Company manufactures welded, full finished stainless, duplex, and nickel alloy pipe and tubing for the most demanding service in food, dairy, chemical, petrochemical, and other process environments.

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