Manufacturing problems rarely stand alone. With the digital transformation of the industry, every part of production is connected. If there is a challenge in one area, it will affect other areas as well. It is common to find that problems progressively trickle down from one seemingly independent silo to the next, eventually hitting the bottom line.
This is especially true for these 3 manufacturing problems:
- Overlooked Data
- Unbalanced Inventory
- Inaccurate Gross Margin
The way data is managed speaks volumes for the success of a modern business. It affects how products and materials are tracked, how inventory strategies are established, and how profit is calculated. Proper data analysis enables manufacturers to improve operations, balance inventory measures, and strengthen their bottom line.
Let’s explore the root causes of these three manufacturing problems and find effective solutions to strengthen your operations and increase profitability.
Problem #1: Overlooked Data
“Processed data is information. Processed information is knowledge, Processed knowledge is Wisdom.” - Ankala V. Subbarao
In the above quote, Ankala V. Subbarao, famed mathematician and number theorist, is outlining that data has an exponential value. It may seem like random numbers, but powerful knowledge and wisdom are behind each figure.
For modern companies, data is a key place to address manufacturing problems and make improvements to business operations. From understanding the needs of your customers to the needs of your production, good data management can take the guesswork out of manufacturing and supply chain management.
But sadly, data management is all too often overlooked and not taken seriously. Or worse yet, companies have more data than they know what to do with. They are overwhelmed by the sheer amount of potential information. This leads to manufacturers investing money into big data and not receiving the full benefits that it has to offer.
Solution: 5 Questions You Need to Answer
Despite the vast amount of actions that can produce worthwhile information, getting the most out of your data boils down to quality instead of quantity. You’ll want to make sure that each ounce of gathered data - whether large or small - is accurate and specific to your operation.
Ask yourself and your team these five questions to help you gain the best value out of your data retrieval practices.
1. What information needs to be gathered?
It is crucial to have defined goals when gathering data. Are you looking for information on profit, productivity, inventory, customer satisfaction, or something else? There are innumerable factors that can give manufacturers the information they need.
Looking at vast scores of data without a specified purpose is a fast way to become overwhelmed by the numbers. But having a clear goal will help you pinpoint the most valuable information to your operation.
2. Where will the data be coming from?
Once you’ve set your goals and objectives, you can see which is the best tool to gather your needed data. You’ll need a trusted source that is built for the specific purpose of your operation.
Programs like a worker-centric MES are a great source for data retrieval as it connects to your workers and their actions on the shop floor which constitutes the greatest source of retrievable data.
3. When will the data be read?
This involves the time frame that data is recorded and analyzed. Gathering information over a year or a week will give different insights into your business. Accurate data acquisition depends on what information you need to know and when you need to know it.
If you’ve initiated a new process improvement, then pulling data often will help you to track the immediate effects. But if you are looking to glean data from your already established operation, then perhaps a month by month or week by week basis is good enough. Though it can be tempting to gather as much information as possible, don’t overload your team with too much data if it is not needed.
4. Who will analyze the data?
It is important to find the right people with the qualifications, aptitude, and soft skills to accurately process data into information and knowledge. Besides qualifications and experience with data analysis, clear communicators and critical thinkers are perfect for this position.
5. How will decisions be made after the data has been processed?
Here we come again to the importance of setting goals and establishing a general plan. These goals will most likely change as data is processed into information and knowledge, but having an evolving plan of action will help you stay focused.
A helpful model for improvement is the DMAIC approach which will help you Define, Measure, Analyse, Improve, and Control your process as you gain new insight and learn valuable information.
Problem #2: Poor Inventory Management
Classic inventory management issues fall under two well-known categories. You either have too much or not enough. The implications of both can be devastating to a business.
- Too much inventory runs the risk of exacerbating your costs and diminishing the value of your products and materials.
- Not enough inventory runs the risk of stalling your production lines and disappointing your customers.
Your inventory management needs are dependent on your production and your demand, meaning a balanced inventory is highly specific to the needs of your operation and the demand of your customers and productions.
Solution: Find the Right Balance Specific to Your Needs
Increasingly, manufacturers are embracing the digital transformation of Industry 4.0 and using data to make inventory management easier. With data specific to your operation, you are better equipped to find the right balance.
Here are three questions to consider when putting together the best material and product inventory plan for your business.
1. What is the driving force behind the production?
As we discussed in Push vs Pull Manufacturing: Which is Best for You?, production can rely on forecasted demand (Push) or it can rely on actual demand (Pull). Each has its own merits depending on the industry and the product.
Finding which production and inventory method fits your business is key to maximizing savings while minimizing the amount of inventory needed.
2. What is the optimal stock for the material or product?
Find the minimum and maximum levels of inventory that your organization needs to run smoothly. This will provide you with a regulated safe zone that helps you maintain the right amount of materials and products. If inventory numbers go below or above these levels, you can adjust your purchasing and production accordingly.
Using min/max levels also prevents companies from buying too much of one item and tying up their liquid capital as a result. Stay within your margins for optimal stock and you’ll have more available cash when needed.
3. What is tracking the inventory?
Advanced systems, such as work instruction software and an ERP, enable manufacturers to monitor their inventory in real-time. The system tracks the use of materials while tabulating goods that are in process and finished products. This allows companies to have a firm understanding of their past, present, and future inventory levels and needs.
Re-ordering materials can also be done autonomously. As materials are used and products are sold, your system is closely monitoring the inventory and following the predetermined min/max levels. Outside of the regulated safe zone, the system informs the appropriate people and re-orders when needed.
Problem #3: Inaccurate Gross Margin
Every manufacturing problem eventually leads to a discussion about the bottom line. The question is asked: “How much money are we making after expenses?” For this reason, gross margin is a critical part of determining if your business and investments are performing at a profitable rate.
If your gross margin assessment is inaccurate or loosely followed, then you can lose out to competitors with a better understanding of their production and cash flow. Tools that enable you to monitor both your expenses and productivity are key ways of keeping costs down and revenue up.
But all too often, companies focus solely on direct expenses and pricing strategies; sometimes forgetting the impact that inefficient operations and wasted time can have on their gross margin. The productivity and efficiency of your workforce and operation affect the bottom line as much as the cost of materials.
How to Calculate Gross Margin
Before we dive too deep into some ways to increase profitability, it will be useful to define how gross margin is calculated. It is a simple equation that looks at Net Sales and Cost of Goods Sold (COGS) and determines how much revenue is saved.
Gross Margin = [(Net Sales - COGS) / Net Sales] x 100
So for example, if your Net Sales for the year equaled $120,000 and your COGS equaled $75,000, your gross margin would be calculated like this:
[($120,000 - $75,000) / $120,000] x 100 = 37.5%
The higher the gross margin, the more money your company is making. It is important to note that newer companies will regularly have a lower gross margin as the initial investments are higher. Gross margin will also vary from industry to industry. If looking for comparative numbers, it is best to look at competitors within the same industry.
Solution: 3 Ways to Increase Gross Margin
When looking at ways to increase your gross margin, the common method is to increase prices and look for cheaper options. But if taken too far, this can negatively affect your consumer and your product. Rather, businesses need to focus on making their productions more efficient and lean.
Here are three key ways to increase gross margin and streamline your operation without compromising on quality and customer value.
1. Calculate the big and the small
As we’ve discussed with data and inventory management, knowledge is key. If your inventory and workforce numbers are not accurate or up to date, then you’ll be unlikely to make smart decisions or improve your operations.
One way of getting the most accurate knowledge is to analyze the gross margin on a macro and micro scale. Look at the gross margin for your entire company and also for each of your products, services, and divisions. This will enable you to see what areas are making the most money and which areas need adjustments.
2. Productivity and Efficiency Equals Profitability
Time is money. If time is wasted on the shop floor, then that will surely show up in the gross margin. That is why businesses must focus on limiting waste and adopt a true lean approach.
Using our previous step, start with areas that you’ve calculated to have a lower than average gross margin. These areas are prime places to start cutting waste and making improvements.
3. Invest in a system that automates your data tracking process
No matter the product or item assembled, manufacturing is full of repetitive steps. From scanning serial numbers, transferring information, and entering quality data, these actions collectively take time away from your production and invariably hurts the bottom line.
But with the advanced technology of Industry 4.0, it is more possible than ever to pass off these repetitive tasks to smart autonomous systems. With tools like VKS Connect, manufacturers can automate data capturing and retrieve data directly from the tools and systems being used. This streamlines the process and enables manufacturers to gather data without taking up valuable production time or hurting their gross margin.
Knowledge is Your Greatest Commodity
Modern manufacturing problems need to be solved with insight and wisdom. The way data is gathered, analyzed, and applied has an incredible impact on your business. With a healthy approach to data management, your operation can run at peak efficiency and pursue value to the fullest. Inventory management no longer needs to be the guessing game it once was and gross margin can be increased with strategic planning and knowledge.
Whether you need insight into your operation, a more balanced inventory, or real-time productivity tracking, our work instruction software makes data acquisition and analysis easy and powerful.