Manufacturing Solutions

Manufacturing Solutions: Cost Drivers, Location, & Strategy for Product Launch Success

Skills acquired through degrees, certifications, and training allow you to attain the industry position you desire in the job market. As with pursuing a career path by acquiring the needed skills, an organization’s strategy can be realized through selecting the appropriate supporting manufacturing solutions that allow a company to better compete in the hyper competitive global economy.

High growth technology companies face frequent competition from new entrants and disruptive manufacturing innovations, and should compete on customer decision criteria other than price to avoid becoming a commodity. There are over 250 thousand manufacturing firms within the United States alone, thus it is essential to choose a manufacturing strategy that best supports your business model and customer needs to ensure long term success.

Challenges

Companies are faced with challenges to simultaneously lower costs, increase quality, and shorten lead times. On demand services such as 3D printing, mass customization, and same-day delivery are driving customer expectations in the era of instant product availability. Meeting these consumer-driven supply chain challenges while continuously working to drive costs down pose an ongoing test for manufacturers. To fully understand your cost drivers, each product needs to have a clearly defined manufacturing strategy. Finding the optimal product manufacturing strategy is an ongoing effort to adjust to the customer decision criteria in which your company completes on in order to stay competitive. Due to the high number of manufacturing strategy inputs, cost drivers, manufacturing location, and product manufacturing strategy represent a unique set of challenges for developing and maintaining a manufacturing strategy.

What is World Class Manufacturing?

World class manufacturing is alignment of all manufacturing solutions across the supply chain that allow a firm to compete and win on a global scale for the firm’s desired competitive position.

World class manufacturing today must move beyond the tactics of internal operational excellence to focus on a holistic strategy for all manufacturing value added process steps throughout the supply chain. Leading manufacturers today view suppliers as an invaluable enterprise extension and have an in-depth understanding of the core value added process steps executed by their suppliers.

New markets, products, and shifting competitive landscapes are opportunities to develop alternative manufacturing models that offer unique ways for OEMs and suppliers to partner together to deliver value. Specifically, world class manufacturers must institutionalize identifying manufacturing cost drives, selecting manufacturing locations, and developing product manufacturing strategies.

Solutions

Identifying Manufacturing Cost Drivers

Manufacturing costs constitute a large percentage of product total cost of ownership. Raw materials and components are two major cost contributors but identifying all of the additional costs leads to through cost accounting. Productivity is increasing rapidly driven by trends in automation and connected factories leaving a small margin for lost time. Companies must work with suppliers to identify wasted time and resources using the Japanese 3 M’s of lean (muda, mura, and muri) to guide waste removal to free up capacity. Calculating Cost of Poor Quality (COPQ) at each manufacturing process step will identify the most useful quality check points, and which should be completed. Quality checks increase manufacturing costs and disrupt process flow so working with suppliers to address COPQ ensures waste is avoided before occurrence.

Selecting Manufacturing Locations

Todays on demand economy requires increased speed to market; and yet customer buying decisions are influenced by: cost, manufacturing location, and perceived quality. It is critical to determine the most important customer decision factors when selecting manufacturing location. As globalization is transcending national borders, the world has become a domain for site selection. Re-shoring, shifting manufacturing from Asia to North America, and next-shoring, manufacturing near consumption, both offer strategies to compete as consumers demand lower shipping costs and quicker delivery time. Product quality is highly dependent upon manufacturers experience with materials, processes, and technology. Labor-intensive products, consumer electronics, are often manufactured in lower cost countries such as Malaysia whereas complex technology products, supercars, are often manufactured in higher cost countries such as Italy to leverage engineering know how.

Developing Product Manufacturing Strategies

When defining your product manufacturing strategy, it is important to define the critical components and processes of your product. A manufacturing strategy is defined by the company’s core competencies, and key inputs into the finished product. To begin defining this strategy companies need to fully understand the make vs. buy financial impact of all processes involved. It is recommended that high intellectual property and complex products be manufactured and assembled in-house, while standard components are manufactured by suppliers that have significant experience and scale with commodity components. Depending on your company’s manufacturing ability it may be beneficial to explore developing relationships with contract manufacturers. Contract Manufacturers’ abilities range from supporting a products entire supply chain, assembling the finished product, or assembling different modules within a finished product.

Conclusion

As with acquiring the skills needed to attain your desired professional position, companies need to become experts in world class manufacturing while also creating long-term partnerships with contract manufacturers and suppliers to accomplish their manufacturing strategy. Manufacturing strategies need to constantly evolve to support consumer driven market trends so company’s ability to continuously learn and implement new manufacturing solutions is key to sustainable success. Manufacturing costs have a substantial effect on product success so focusing on continuous improvement and innovation will positively impact the bottom line. The ability to manufacture products all over the world leaves companies with crucial decisions to make when sourcing supply partners which should be periodically reevaluated. Our experience has demonstrated that a product’s manufacturing strategy must constantly evolve to properly address shifting customer needs and proactively out innovate the competition. World class manufacturers institutionalize processes for evaluating manufacturing cost drivers, manufacturing location, and product manufacturing strategy to ensure operations success.

-Tony