How Much Is Too Much? Identifying Hidden Costs in Manufacturing Operations

I was reaching for my deodorant yesterday when I realized that it assured me “72 hours of protection”. Back in the day, I used to love camping and, if you could reach me by cell phone, I had not gone far enough into the wilderness. This was not car camping or a site at a campground with a shower and toilet. This was carry-your-own-water, backpack in and pitch a tent. For that, 72 hours of protection would have been fantastic. Now, with a desk job, I wouldn’t want to even see me after 3 days with no shower.

So what’s the point of giving me more than I need? The upside of my deodorant is that the 72-hour stick is no more expensive than the regular and it takes no more brain power to operate. My experience with it is the same. I don’t spend time at the store (but apparently, I do spend time thinking and writing about it here) wondering if I need it or if I should purchase it.

It’s totally different when you’re buying tools to help you in your shop. For that, you don’t need more than you need (which is a hard bar to assess) and you don’t want to pay more than you must. Unlike my anti-smell stick, manufacturing software systems vary greatly in price and – often – that one with the custom set of features you need is priced exactly the way you think it would be (completely unaffordable). 

how much is too much in production operations?

First, let’s talk about cost. The average reported profit margin in US manufacturing last year was 5 – 10% (and there’s a healthy difference there between 5 and 10). That’s not as thin as some margins for small manufacturers that we talk to, but we’ll use those numbers in our calculations here. The average hourly wage was between $30 – 32, reported in June of this year. For every 15 minutes that you’re able to save the average worker each day, you’d be safe to say the reported cost savings would be about $8, not loaded.

Further, history has told us that you should spend between 2 -3 % or less than 5 % of your total net revenue on software in manufacturing. That means, for every million dollars that you are selling, you have:

• about a dozen people working for you,
• 3,500 to 5,000 dollars per year to spend on software and
• an average cost savings of $2,080 per person per year.

Not all of you want to spend all that savings on software; we certainly don’t want you to. That’s the overspend trap that we see so many manufacturers get tangled up in. They purchase software systems with annual spends in the 50,000 – 100,000 range annually and cannot sustain that and do not get the return they need. Note that services dollars scale with the price of the system, so everything will be more expensive.

Once you get past cost, you’ll want to consider time. It takes me no more time to swipe on a regular stick as a 72-hour one. Not so in production control software. And it’s very much related to the time you’re going to spend (and save) as well. I’m far more likely to pay attention to a medical procedure to avoid deodorant all together than I am each morning as I open the cap. You are more likely to spend a lot more time and attention on a system that costs upwards of 2 full-time staff every year. That’s time and money you can’t spend elsewhere and – unless it is providing you monumental gains over other systems – it’s not money or time you can afford, literally.

Time for these systems comes in three forms: before, during and after implementation. The before is what you’re living now and only you know where your pain points are and how badly you want to get rid of them. That 15 minutes of cost savings per employee per day that we talked about can add up quickly if it’s real for your team. You will want to be very careful that you’re not overspending time in other areas, however, and that’s where we move into the “during” phase. Software is one of those “the more you put into it, the more you’ll get out of it” products, but don’t let that swallow you up. You need to know that the software vendor has done their due diligence to limit the amount of set up time you need to spend to get the thing to work. Here, we’re going to talk about MES systems only or the manufacturing area of an ERP / MRP.

Sidenote here: in 30 years, we have never met, worked with or even talked to a manufacturer that put in an ERP system of any kind that got to implement it on the shop floor until all the financial areas were complete. For most of them, that timeline lengthened with every project, was longer than they were expecting, and put manufacturing behind by a good 6 months – 2 years. Which one of you can predict that you’ll need help in manufacturing but not for another 2 years or are willing to wait for that time once you put the system in? The global economy is moving too quickly for that to be competitive for you.

where are the time savings in Production Control?

For any system that will work on your shop floor or with your operators, you will want to be sure you have a few key ingredients; everything else can be beneficial but worth far less without these.

• Job / Order dispatching and management: a solid production system should be able to take any order from your customer (or you, for that matter) and put it through its paces. This includes checking for inventory (materials, parts, tool) availability, reserving those resources, prioritizing the work, adding it to the schedule, and then watching it and troubleshooting every step of the way. Information should be live and up-to-the-moment so you actually know what’s going on. When something goes wrong (because, honestly, when have you had a perfect day in manufacturing), the system should go beyond notification into problem-solving and make it easy for you to communicate and record throughout the process. It’s critical that the system notes what was supposed to happen and what actually did happen so you can track where you’re losing the most money and time for later.
• Schedule automation and management: a strong scheduling tool will do your job for you. It will schedule the jobs out and readjust them as work and time go by so that you know you have the very best view of when things will be done. Allowing you to split work among people or machines is helpful, but not critical here. Realigning work in real-time is.
• Process control and management: whether you bring over a routing from the ERP or you build your processes internal to the system itself, you must be able to see and edit the workflow so you can balance the work to be done, the people who will do it and inform everyone along the way to ensure the work’s done properly.
• Inventory and tooling management: we’ve already talked about this above, but true management of your tooling and inventory cannot be done with a list approach (Excel, Access, list of goods in ERP). You must know what you have, where it is, when it’s required, what’s going to use it and, for the records, where you did so.
• Resource certification, allocation and management: you want to be sure that individual members of your team only see what they should. Being able to see other work is distracting at best and interrupting of the workflow if you let it become so. Get a system that lets you monitor who’s doing what – if you want to. It should automatically track what people are able to see, what they know how to do (and not) and what’s changed since they were last there. It should prompt them with new information and make it easy for them to do their work.

Phew! After all that, we may NEED 72-hour protection. Next week, we’ll talk more about what you should expect to invest in and what’s a smart use of your time.  

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