10 Ways to Reduce Manufacturing Overhead Costs

Manufacturers have been receiving mixed signals as of late. On the one hand, manufacturing has seen a slow rise in activity but, available talent and labor has been dwindling. On one end of the spectrum, peak season and holidays promise increased production but, on the other end, we’re already seeing a break in the upwards momentum of that production according to many reputable sources like the Institute for Supply Management. 

Whether you find yourself in the camp of “manufacturing is doing great!” or “darker times may be ahead,” one thing is for certain: uncertainty. As the economy continues to find its stable footing, there’s truly no telling where the industry, and many others, are headed, making strategies for reducing overhead costs in manufacturing even more essential than they are normally. 

Of course, even when manufacturing is doing well, cutting manufacturing overhead costs is a necessary practice. But, how can we take recent lessons learned and, in conjunction with smart manufacturing technology like industrial grade computers, leverage those lessons to improve our cost reduction strategies? Here are 10 ways we’ve seen employed with increasing frequency as 2020 continues to trudge on. 

1.) Cutting Manufacturing Overhead Costs Starts With a Value Stream Map

A value stream map is a laying out of your plant’s entire production process. Everything from raw material acquisition to customer delivery is listed here, giving you a crystal clear understanding of every minute step taken to make profit. There’s a reason this strategy is mentioned first. That’s because all plans to lower manufacturing overhead costs start with a well fleshed out value stream map.

Lean manufacturing – or the process of cutting away all wasted time, staff, and work that is unessential to making profit – has gathered quite some popularity as manufacturing experiences quakes in its ability to produce. Several have seen success in this strategy and it all begins with creating a bird’s eye view of your production through a value stream map. Once this tenet of lean manufacturing is constructed, every other plan for reducing overhead costs in manufacturing we mention below can then be considered. 

2.) Back Office Management

Before focusing on the frontlines and manufacturing cost reduction strategies centered around the factory floor, it’s integral not to forget that your back offices, where payment processing and customer relations occur, also have potential to be streamlined and increase profitability. Fortunately, automation remains a low cost, potent means of delivering this profitability. 

Solutions like robotic process automation in manufacturing have increased in use as factories have become more self-reliant and begun to sell directly to their consumers instead of engaging in busy, hard-to-manage supply chains. Automation strategies such as these eliminate costly human errors in data entry and payment processing by automatically populating forms with relevant information shared by your consumers. Furthermore, this time saved that would have been spent on manual data entry (and fixing the inevitable, human slip ups in punching in that data) translates to lower labor costs and downtime for you. 

3.) Telecommunication

With more administrative staff working from home thanks to the transformation of the workforce into something more remote-focused, proper telecommunication means more than convenience, it means improved response times which can cut downtime and costly miscommunications. Adopting that mindset, investing in proper bandwidth and telecommunication solutions becomes just as viable a strategy of reducing overhead costs in manufacturing as anything else mentioned on this list. 

Try finding a wireless provider who delivers manufacturing-optimized plans that cut unnecessary fluff. Finding a wireless billing plan that allows you to keep your staff, including the increased number of workers working from home, on one plan that is catered to manufacturers such as yourself can help save money on unnecessary features. More powerful bandwidth delivered by these plans can also help your entire team, especially those who are in-house and traveling the floor with an industrial tablet, share data in real-time, cutting the possibility of faulty communication-fueled breakdowns and stops in production.

4.) Cybersecurity

It’s no breaking headline. Staying on top of your cybersecurity best practices is still an incredibly strong means of reducing manufacturing overhead costs. In fact, keeping a clean cyberattack record is even more paramount today since increased vulnerability due to COVID-19 has caused a spike in cybersecurity breaches.

And when you consider that the average cost of a data breach for organizations is about four million dollars AND the fact that more payment data stands to be stolen because manufacturers are beginning to delve more and more into direct-to-consumer sales, it’s easy to see why cyberdefense is so important.  

In recent months, manufacturers have begun to increase their incorporations of threat intelligence feeds since they allow for multiple employees to be notified if suspicious access is granted to a factory’s sensitive data. If including such a solution seems feasible in your own plants, taking the time to do so and improving your cybersecurity can save you considerable amounts of money on unexpected breaches. 

5.) Actually Accurate Inventory Management

Cutting down on wasted inventory and raw materials has been a tried and true method of manufacturing cost reduction for as long as manufacturing as a whole has existed. And the strategies deployed to decrease that waste have always focused on improving the visibility of available material/product stocks.  

Panel PCs, industrial tablets, and computers customized with barcode or RFID scanning capabilities remain the best way to approach inventory management. Not only do they make scanning inventory as simple as swiping a barcode or tag, they can also be paired with automation software that immediately logs inventory in and out of your systems without manual input. With these solutions in place, employees across the factory floor, in the back offices, and even those working from home, can receive a real-time, constantly updating understanding of exactly how much materials and goods are available and whether or not replenishment is necessary.

6.) Pick the Best Order Picking Process For You

Taking a moment to narrow down into inventory management, proper order picking and replenishment practices can help keep your facility at the ready to send out products and create more when inventory runs low. And in the same way as inventory management, doing so will lower losses of profit and wasted money on downtime and tangled product shipments. 

While the same RFID tech we mentioned earlier helps in keeping real-time updates on available stock, there are a couple other steps that can help optimize your order picking. Running an ABC item analysis, for example, gives your team valuable insight into what your most sought after products are so packaging and order picking can be optimized around them, streamlining the process and cutting on labor spent searching for those products on the floor. Furthermore, depending on the kind of operation you run, who you sell to, and how much demand your products receive, there are multiple types of order picking practices that can be right for you. Do the proper research and ensure you’re picking the right one that will boost performance. 

You’ll notice this isn’t a manufacturing cost reduction strategy that focuses specifically on production, but if there’s anything making that value stream map should teach you, it’s that opportunities for reducing overhead costs in manufacturing exist at every junction of your supply chain.   

7.) Blockchain

Blockchain has been receiving a lot of attention across several industries, especially manufacturing. Personally, we feel this is because blockchain solutions tick off several of the manufacturing overhead cost reduction strategies we mentioned above. 

Blockchain ledgers allow for several members of your team to keep a vigilant eye on data that is being put into your shared network. The benefits of this ledger are dual-pronged:

1. Supply chain visibility is notably enhanced since now several employees receive a big-picture view of everything happening across your cash-to-order process. This means several employees are now equipped with the knowledge necessary to call out discrepancies and mistakes made in the production and shipping out of a batch of goods. 
2. Cybersecurity is also enhanced since blockchain operates as a peer-to-peer ledger, meaning every change or addition made to information on the shared network needs to be approved by everyone on said network. 

For an example of how well blockchain can be incorporated in the pursuit of reducing overhead costs in manufacturing, one need just look at blockchain’s uses in the food and drink manufacturing sector and how it’s been used to improve everything from cybersecurity and supply chain visibility to quality control, product recall responsiveness, and more. 

8.) Automation (But Take Baby Steps)

Automation has been placed on a pedestal as a sort of “golden child” for manufacturers for quite some time. Several plant owners and decision makers firmly believe it’s the technology of the near and far future and we’re one to agree with them; however, many make the mistake of over investing in these technologies, “optimizing” with new tech that either doesn’t truly deliver value or is too complex for current employees on hand to manage using. It’s this superfluous approach that resulted in the coining of the term “IoT Wallpaper” – smart tech that’s used just for the sake of being used as opposed to being used to return on investments.  

But, you can’t just not invest in smart technology. Keeping up with newer, better means of production is just part of manufacturing. Thus, taking baby steps in your adoption of automation is best advised when looking to diminish manufacturing overhead costs that are guaranteed when upgrading your tech infrastructure.

Collaborative robots in manufacturing are one such method of dipping your toe into automation. They are cheap, require minimal software and specialized hardware to deploy, and can assist employees with menial, repetitive tasks that eat up a lot of their available bandwidth. In short, they’re a low cost entry point into automation that helps save on labor costs AND open the door for future investment in automation when the finances are present.

Whether you go the cobots route or decide to only outfit a couple machines with IoT sensors to test the waters, preparing for smarter manufacturing and attempting to see where value can be derived before blowing your entire budget can not only save you money, but make you money down the road. 

9.) Digital Twins

If you’re attempting to push a new product out to market, you understand that iterative testing can cost quite a bit, especially depending on how complex the product in question is. Digital Twin software allows for all of this testing and iteration to be conducted digitally, cutting the need to waste real-life resources on failed prototypes. The software also allows for you to create simulations of the types of environments and use cases your products will be expected to run in, meaning you can at least cut a few physical prototypes out of the equation and pocket those costs.

Of course, this is only a single manufacturing cost reduction application of digital twin technology. Truthfully, its use cases can expand to product quality control, enhanced supply chain visibility, and even AI machine training, all of which can save your facility costs.

10.) Pick Workstations Designed for Reducing Overhead Costs in Manufacturing

The kinds of workstations you deploy have a massive impact on how many of these strategies for reducing overhead costs in manufacturing you’re able to implement. So, what does a manufacturer need to look for in their workstations?

Firstly, any workstation you own needs to be fortified against the common damaging variables that are present in an industrial workspace. That means you need something that’s built rugged and capable of surviving a drop from up high. Not only that, tablets, computers, HMI panels, and more deployed throughout your facility need to be fanless and IP65 certified, ensuring moisture, debris, and contaminants commonly found in the air surrounding an industrial workspace can’t enter your integral machines and cause malfunctions.

Finally, for many of these solutions we mentioned, RFID readers, sensors, and other peripheral devices are necessary. Naturally, you’ll want to invest in computer workstations that can support these peripherals and, better yet, be customized to include them within the computers themselves. 

Being smart about where you invest your hardware budget opens the door to several of these cost-saving strategies and many many more. Furthermore, these computers, panels, and tablets prepare your facility for future innovations in the manufacturing sector that are sure to require just as much smart technology and IoT compatibility.

Manufacturing Overhead Costs are Varied and So Are Their Solutions to Lower Them

Overhead costs come in all sorts. There are some that are expected, some that occur completely by chance, some that only occur during certain times of the year, and all of these are also subject to the particular industry a factory or plant is serving. That said, this is hardly an exhaustive list of strategies for reducing manufacturing overhead costs. However, all of these strategies, and several others we didn’t mention, require the same things: a core understanding of your supply chain and automation-ready hardware. For more information on how you can set your facility up with these two key qualities, contact an expert from Cybernet today.