How to Reduce Production Costs and Increase your Profits with ERP

How to Reduce Production Costs and Increase your Profits with ERP

Author: | Published: 27 Nov 2018

manufacturing_truck_profit_dollar_signManufacturing is undergoing a fourth revolution (Industry 4.0). Technology and the Internet is transforming the way we make things. Software and manufacturers need to evolve to compete.

For many years manufacturers relied on Enterprise Resource Planning (ERP) systems to provide the “edge”. As competition increased, more and more manufacturers realized that they needed specialist solutions that focused more on the factory floor and supported the complexities of their own industry.

Large manufacturers began to extend ERP into Manufacturing Execution Systems (MES) involving 20 or more specialist software packages all of which needed to talk to each other. Fine if you have the money, but how do you compete if you are a small to mid-sized manufacturer on a tight budget?

Before you can answer this, you need to consider why these manufacturers placed such value and importance on MES? In most instances the driver was to reduce cost to gain competitive advantage and manufacturers knew that to do this they must be able to visualize where their losses are. After all, eliminating losses has been the foundation of lean manufacturing and Six Sigma methodologies for over 30 years.

 

Measuring Your People and Machinery Performance

“If you can’t measure it, you can’t improve it…” (Peter Drucker, Management Consultant)

Measuring your performance is the first step. You have two types of resources – people and machines. For your people or employees there is an established key performance indicator (KPI) known as Overall Labor Effectiveness (OLE). For you machines or equipment there is another KPI known as Overall Equipment Effectiveness (OEE). Depending on your type of business one or the other will take priority but both are important. The most interesting thing though is not that you operate at 40% OLE or 60% OEE (typical performance). It is to understand why these are not 100%. In other words where was the loss?

Visualizing and Eliminating Loss

Visualizing and eliminating loss is the next step. You need to visualize all the loss. Not just some of it. This sounds easier to do than it is in reality and it doesn’t stop there. Once you have visualized your loss you need to understand it so that the right countermeasures can be applied to eliminate it. For example, unplanned loss includes equipment breakdowns, tooling failures and operator shortages from documentation or materials not being available. Each of these has their own specific countermeasure. If I know how much time is lost from equipment breakdowns, I can make an informed decision to change maintenance plans or even replace the equipment. In other words as a result of classifying the loss I know how to tackle it.

Using Data Collection for Efficiencies

The last step is to do all this as efficiently as possible. This starts with data collection because without accurate data collection you can’t measure performance or visualize your loss. The most archaic and inaccurate form of data collection is time sheets. Unfortunately these are not real time and are widely regarded as inaccurate. The next best option is manual data collection via a “stop-watch” style system that must also be able to associate time with jobs and be able to do this for both your employees and equipment.

Finally, the ultimate option in today’s industrial revolution and world of Industry 4.0 and the Internet of Things is to automate data collection from your machines via integration with Programmable Logic Controllers (PLC) or other devices. Over 75% of manufacturers have initiatives to digitize their factories. Those that do not will find it difficult to compete in the future.

The Importance of Planned Loss

Everything we have talked about so far has been to do with measuring performance and eliminating loss once the production plan has hit the shop floor (i.e. unplanned loss). Planned loss is equally important though, if not more important.

Manufacturers who plan and schedule effectively can influence and eliminate loss quickly. Planned loss includes idle time, changeover time (from switching between one product to another in batch production environments) and planned maintenance time. All are considered losses as they represent non-productive or planned downtime.

There is another KPI that considers this – Total Effective Equipment Performance (TEEP). TEEP looks at how you are performing against all the time available (calendar hours). Manufacturers who measure this and improve their planning and scheduling, benefit from quick returns.

Every lost hour costs the average manufacturer around $35 in labor and overhead and around $15 per hour in margin. Even a small factory with just 10 machines will often lose several thousand hours in any given month. Consider the strategic, financial, operational and technological impact of this and you start to understand why world class manufacturers place such value and importance on MES today.

MES is the Solution

In conclusion, an MES gives you a system that identifies, classifies and quantifies all your loss. Only then can you eliminate it to increase productivity, reduce production costs and increase your profits.


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