If you’re a manufacturer, MRO, or job shop, you know that having a lean manufacturing environment is a major priority. It is possible to cut down on wasted costs and create a lean manufacturing environment by obtaining:
- suitable time commitments
- the right reporting tools
- a team that is on board
In this article, we will be discussing areas in which resources are commonly wasted, as noted in the Lean Manufacturing operation method. When these waste areas are addressed and corrected, your company could save money and improve staff and customer satisfaction.
This list is not new to Supply Chain, but we hope our ideas based on the Lean methodology will help your business become more profitable. In the following, we discuss transportation alongside the concept of lean.
Transportation costs can get out of control if the right processes are not in place. Part of keeping transportation costs down is ensuring you have the right amount and the right quality of raw materials on-hand, which requires a strong inventory system that your team utilizes properly. It is often difficult to reduce transport costs if you have a huge order and are out of raw materials for production. Evaluating the costs to transport raw or finished goods should be done when you evaluate finished goods costing. Oftentimes manufacturing and MRO (maintenance, repair, and overhaul) businesses put freight costs in a separate account, so it’s never fully visible in the cost of inventory. This is fine if you have your costs under control, but if they're not, consider spending a little time looking at your landed costs. Tracking landed costs can be cumbersome, so it is recommended that you:
- Use a tool that simplifies the process, like Dynamics AX, which checks rates and even handles containerization. It can also analyze bleeders.
- Start by only tracking a few of your inventory items, such as the most commonly used. We do not recommend that you begin tracking landed costs on all of your raw materials due to the overhead this task can cause. Keep in mind that it could be the smallest parts or ingredients needed in production that can cost the most to transport due to inaccurate inventory counts and/or poor quality materials than can result in last minute orders which force the need for expedited shipping.
Immediate steps you can take to save on transportation include:
- Look at your freight costs and analyze the data to determine which vendor has the highest freight costs.
- Complete a vendor service review and start tracking the promised delivery time versus the actual delivery date and also the quality of each vendor. Start with your highest costing vendors and usage items. Once you’ve collected this information you can use it to negotiate for better costs.
- If the above fails, try to negotiate better rates with your vendor or carrier the next month. Give your purchasing department ownership and pride in saving money. (Possibly even consider a reward such as a percentage of the savings given as a bonus, etc.)
- Ensure your business software system is keeping an accurate account of your raw materials/parts and that your staff is using the software properly.
- Make sure freight costs are applied to the correct GL account.
- Evaluate your customers’ pricing and check to ensure freight costs are included in your evaluation. If you discover customers who are not as profitable as they should be, perhaps a policy change is needed in which they pay freight costs or you increase their pricing. Of course, low profitability by customer could be related to numerous other business issues, as well.
Clients First is here to help you lean down your manufacturing. We operate both nationally and internationally. Our AX consultants headquartered in Dallas/Fort Worth, Texas are committed to your successful Dynamics AX implementation (click on the link to email us). We are Microsoft Gold Certified Partners who know that there is no such thing as a “universal” ERP solution, especially for manufacturing. Dynamics AX must be tailored to your company’s needs, organizational culture, staff capabilities, and project’s characteristics. Call us at 800.331.8382 so we can put your company first, too.