This post is part of the 33 Ways to Amplify Your Profit Quickly.
Operation costs are the lever that you have full control on. Depending on the way you do it, costs can be significantly different. Therefore, there are many things you can do to improve operational efficiency.
Structurally, your operational margin will increase if you:
Improve Your Manufacturing Efficiency.
Improve Your Service Operation Efficiency.
Digitalize Your Operation to Reduce Costs and Improve Efficiency.
Optimize Your Supply Chain and Improve Your Sales & Operation Planning.
1. Improve Your Manufacturing Efficiency
Reducing manufacturing costs is a well-studied lever. Lean engineering, six sigma, and kaizen continuous improvement culture are just the three most popular methodologies for efficiency improvement. Furthermore, manufacturing footprint optimization could consolidate factories and close inefficient sites. Further capital investment in modern equipment will also reduce manufacturing costs.
The objectives:
Optimization of manufacturing network
Increase site efficiency
Leverage technology to reduce costs
Steps to execute:
First, you analyze existing manufacturing performance. Consider doing on-site plant assessments (such as site visits, workshops, quantitative and qualitative improvement-levers assessment) and benchmarking (including internal and external KPI benchmarking, direct and indirect manufacturing processes).
Cost structure for each site.
Capacities of sites.
Utilization of lines (line-by-line) for short- and mid-term.
Overview of manufacturing footprint.
Number of manufacturing employees (full-time, part-time, agencies)
OEE/labor efficiency
Cycle time/lead time
material flow/layout
Value Added/Non-Value Added analysis
Crewing analysis
Utilization/network analysis
Then, you can assess and prioritize opportunities. The list is endless -- a walk along the process, an inquisitive mind, and talking with the factory people will give you many good ideas (I am always surprised that people actually have many good ideas but never voice them until they are asked). Few ideas to get you started:
Adjust manufacturing capex to match demand (zero-based capex budgeting).
Review ongoing manufacturing projects and cut the underperforming ones.
Rightsizing of capacity to match demand.
Optimize work shifts, line staffing, and production schedules (e.g., to reduce overtime payment and downtime).
Re-negotiate external lease and rent contracts (staff and equipment).
Insource external services (to fill idle capacity).
Store or sell unused equipment capacity.
Eliminate immediate capacity bottlenecks.
Use data science to optimize the maintenance capex.
Speed up the production line speed (e.g., test what happens when the line speed is increased by 5%, 10%,... beyond the OEM's speed recommendation).
Shorten the distance traveled by the robotic arms.
After that, you can create detailed action plans and set improvement targets.
Finally, implement the plans and track the results.
2. Improve Your Service Operation Efficiency
Most companies not only produce goods but also produce services. You can reduce the cost of service production by streamlining your service operations.
The objectives:
Improve process efficiency
Reduce waste in service processes
Steps to execute:
First, you start by reviewing service operations processes and performance (cost, number of headcount, processes, outputs, etc.).
Stage-by-stage issues identification.
Performance Benchmarking.
Internal and external interviews.
Identify key processes and set targets.
Benefit mapping.
Define a roadmap to reach targets.
Once you have done so, you can identify and prioritize business processes to be improved.
Remove unnecessary services and offerings which aren’t valued by the customers (both internal and external customers).
Adjust service levels to a viable minimum for internal and external customers. This will reduce costs and customer satisfaction, but not to the point of customer switching.
Adjust service capacity to match demand.
Balance capacities with demand, and remove bottlenecks (e.g., shift planning).
Remove overcapacity (external vendors, temporary labor, internal workforce).
After that, you define improvement plans and develop a roadmap for the prioritized processes.
Set up implementation monitoring and tracking.
Launch daily capacity management meeting.
Set up a continuous improvement roadmap.
Finally, implement the plans.
3. Digitalize Your Operation to Reduce Costs or Improve Efficiency
Adopting technology and digitalizing your operations can generate a significant impact. In manufacturing, you can use robotics 24/7 to increase output dramatically while reducing labor costs. In banking, you can replace your physical branch with online banking (many fintech companies don’t even have a single physical branch today). Similarly, many successful retailers today are purely digital with no physical store. So, take a hard look at your business model and think about how going digital can improve it.
The objectives:
Digitalize your operations: use digital to deliver
Improve your digital enablement
Use digital as part of your offering
Steps to execute:
First, you identify what is possible.
Map the available digital solutions. This is necessary because every year new technology comes in.
Review existing partnerships with technology providers and identify potential in unused technologies.
Expert interviews.
Then, you review your existing operations (costs, number of headcounts, outputs, process) to find opportunities.
Assess the digital maturity of your business. You should be able to do this once you map all the available digital solutions. If you don’t know where to start, do quick desktop research: many consulting firms provide their assessment sheet online, which you can adjust to your own needs.
Identify use cases for quick resource savings by the implementation of Robotics Process Automation, Artificial Intelligence, or Machine Learning.
After that, you can prioritize the business processes to be improved and start preparing detailed action plans.
Digital enablement roadmap.
Scaling up process automation.
Self-service digitally.
Finally, implement the plans.
4. Optimize Your Supply Chain and Improve Your Sales & Operation Planning
An inefficient supply chain hides a lot of costs. You can realize a big saving by optimizing your supply chain. From inbound logistic, warehousing, and outbound logistic to supply and operation planning, there are much that can be improved.
The objectives:
Optimize supply chain network
Optimize the Distribution Center/warehousing footprint
Increase process efficiency (e.g., S&OP)
Improve supply chain service level
Steps to execute:
First, you review the supply chain performance.
Elements to be analyzed included:
Supply chain cost.
Supply chain utilization.
Supply chain Full Time Employees.
Supply chain planning.
Supply chain footprint overview.
IT system mapping.
S&OP process mapping.
Conduct supply chain benchmarking (external benchmarks such as APQC can be helpful) and analyze gaps for improvement.
Analyze the S&OP output to optimize asset structure, lead time, supplier forecast, and capacity planning.
Conduct a focused supply chain maturity assessment for identified gaps.
Then, you can identify and prioritize opportunities. Example of opportunities:
Review the demand plan and make the necessary adjustments.
Challenge and update sales forecasts. Make sure the sales forecast is accurate.
Compare against historical data and customer forecasts.
Monitor forecast accuracy.
Adjust both internal and external capacities to match demand.
Rightsizing supply chain capacities (staff and equipment) according to short-/and mid-term demand.
Manage supply chain capex (i.e., make sure the supply can meet both the current and future demand)
Review ongoing projects and eliminate the underperforming ones.
Reduce costs by:
Using internal or external warehousing.
Renegotiating warehousing contracts.
Renegotiating external contracts (rates, service, scope).
Using leased/temporary staff.
Using leased equipment.
Using external transportation capacities (or renegotiating the contracts and rates).
After that, you can prepare detailed action plans and set the target.
Finally, you implement the plans.
To see other ways to improve your profit, check the 33 Ways to Amplify Your Profit Quickly.
Alternatively, to continue exploring winning strategy, click here.
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