5 Steps to Achieve 20% Cost Reduction in Manufacturing in 6 mo...

How to achieve cost reduction in manufacturing

There is always pressure to achieve cost reduction in manufacturing. While it’s tempting to cut back on staff, implementing the right manufacturing process improvement techniques can be a much smarter approach.

By applying lean manufacturing principles, companies can often achieve cost reductions of 20% or more in as little as six months. The key is to take a systematic approach to identifying and addressing the root causes of waste and inefficiency in your manufacturing operations.

At OE Partners, we take clients through five steps to make measurable improvements. Often, solutions are hiding in plain sight and are easier to implement than you think.

Five steps to achieve cost reduction in manufacturing

Map your current value stream
Identify key constraints that will accelerate cost reduction
Implement basic lean process improvement techniques and tools first!
Prescribe targeted improvements at the bottlenecks
Keep calm and carry on

At OE Partners, we apply the following steps, using lean process improvement tools to help our clients reduce costs without the need for layoffs.

1. Map the current value stream

To achieve immediate and substantial cost reductions, the first and most critical step is to establish an objective, data-driven understanding of your current state value stream. Everyone has opinions on how to cut costs, but a well-developed value stream map provides objective confirmation of what will truly drive savings. The difference between thinking an idea might deliver cost savings and knowing that it will deliver measurable cost reductions is transformative. Opinions are cheap, knowledge is power.

So how do you do it? The process involves conducting a thorough analysis of your existing manufacturing processes and creating a detailed value stream map. The map should document the key value adding steps of the process, including cycle times, labor requirements, wait times, and productivity levels. This facts-and-data approach not only helps to identify bottlenecks and inefficiencies but also targets the specific constraints that are actively draining your profits. By building a clear picture, based on objective facts, you can prioritize improvements that yield the most significant cost savings, ensuring your efforts are both strategic and impactful.

Data has a large role to play in value stream mapping. Often, people fall into a ‘business as usual’ way of doing things and assume operations are (barring a few tweaks here and there) already optimised. When an external lean management consultant analyses key metrics such as wait times in between processes, productivity levels, utilisation, hand over times etc, it becomes easier to identify key areas where money is being wasted.

Having conducted hundreds of value stream mapping exercises, OE Partners is highly adept at quickly spotting roadblocks that are having the biggest impact on operating costs and profits. This can lead to rapid improvement in a short amount of time.

2. Identify key constraints that will accelerate cost reduction in manufacturing

One of the biggest drivers of cost in manufacturing is underutilized equipment, processes, and resources. Reviewing how processes are balanced and how work “flows” is critical to uncovering opportunities for efficiency gains. Ensuring machines, tools, labor, and other resources are running at peak efficiency has a significant impact on costs. This often involves addressing common issues like material shortages, information delays, or imbalanced workloads that cause people and processes to sit idle.

If you can prevent stop/start interruptions, eliminate processes running slow because they’ve temporarily “run out” of work, and reduce mistakes and rework, it’s not uncommon to achieve up to 20% more productivity. By pushing 20% more jobs through your manufacturing system, the benefits multiply: direct costs decrease per order, job, or project, and indirect costs per job also drop significantly. Addressing these constraints creates a ripple effect, driving down costs while improving overall productivity..

To put it in more practical terms, often, the team at one step of the process will be flat out, while people at another step will “go slow” or create “busy work” so that they’re not standing around for half the day. A laser cutter, for example, may only be in use half the time because of a bottleneck at the order processing side of things. An additional headcount or allocated resource could speed up order processing and put the laser cutter to far more regular use, which will increase productivity and reduce the need for cost reduction in the first place.

In one instance, we worked with a client that used an automated warehousing system. There was a bottleneck at a particular station but the business wasn’t aware this station was the constraint. The station often stopped because the operator was unavailable, either on a break or doing different tasks. Every time he stopped working at that machine, money was lost. Solutions were implemented to help keep him at this important post for longer during his shift. This was a very small change, but putting other hands to work and keeping the machine operational had a big flow-on effect.

3. Implement basic lean process improvement techniques and tools first!

Implement the basics of lean production like 5S

Cost reduction doesn't need to be complex and doesn’t always need an in depth analysis. If your manufacturing facility has clutter, is messy and difficult to work in then chances are you are incurring higher direct operational costs than you should be. It's no coincidence that the world's most profitable manufacturing companies (think Toyota, Procter and Gamble, Boeing etc.) all have neat, tidy and clean work environments. The lean production 5S system is a foundational lean manufacturing tool that focuses on workplace organisation and standardisation.

Think about trying to make a meal in a messy kitchen. When you don’t have what you need to hand, you waste a lot of time opening drawers and rummaging around. And if you’re missing something completely, like a frying pan, you won’t be able to get the job done.

5S is designed so your team can step into their workplace ‘kitchen’, grab the ingredients and utensils they need and get to work faster.

A word of warning, companies without this “a place for everything and everything in it's place” approach often have team members and managers who consider “tidying up” as non-essential and not “real work”. This world view needs to be corrected and a calm unwavering approach will need to be applied. However it is well worth the effort as companies with well implemented workplace organisation can be up to 10% more efficient. Let’s repeat this point… that’s a 10% direct labour cost reduction simply from tidying up.

Thinking about your organisation, how much productive time is wasted because people are searching for tools, materials, information and equipment?

So what is this 5S system of workplace organisation?

The five steps, each starting with the letter "S" in English and Japanese, are:

Sort (Seiri)

The first step of lean production 5S is to go through work areas and do some organising. Anything that is not essential for current production should be removed from the workspace and either discarded, recycled or stored elsewhere. This helps eliminate clutter and unnecessary items that can contribute to waste and mess. It makes it easier for people to find what they want, faster.

Set in Order (Seiton)

Once unnecessary items have been cleared, the next step is to arrange the remaining tools, parts and equipment. This involves labelling, colour-coding and designating specific storage locations for each item. The goal is to create a workplace where everything has a designated, logical place.

Shine (Seiso)

The third "S" stands for shine, which refers to the regular cleaning and maintenance of the work area. This could involve tasks like sweeping the floor, wiping down surfaces and performing basic equipment upkeep. Keeping workspaces clean helps identify problems early and maintain high standards of organisation. Everyone should have a responsibility and tasks should be shared equally amongst the team.

Standardise (Seiketsu)

With the first three steps in place, the fourth step is to standardise processes and procedures for maintaining the 5S system. This might include creating visual management tools, requiring people to ‘sign out’ tools when they use them, establishing standard cleaning schedules across the plant and defining roles and responsibilities for running 5S. The goal is to make the 5S practices a consistent, habitual part of the daily workflow for everyone in the business (not just pockets of excellence) .

Sustain (Shitsuke)

The final step is to sustain the 5S system over time. This requires ongoing audits, training and reinforcement to ensure the organisation and cleanliness standards are maintained. It also involves incorporating 5S into job descriptions, KPIs and incentives to keep employees engaged and accountable. It’s amazing how quickly habits can form when a reward is on the horizon.

Implementing 5S requires both the right systems and a cultural shift towards continuous improvement. By making workplace organisation a priority, manufacturers can reduce waste, improve efficiency, and lay the foundation for other lean initiatives. Over time, 5S becomes an ingrained part of the way work gets done, driving sustained cost savings and productivity gains.

Want to nail 5S and have a more organised manufacturing process? Enrol for one of our upcoming FREE webinars.

4. Prescribe targeted improvements at the bottlenecks

A cost reduction strategy in manufacturing will include little wins and big ones, but everything adds up.

Once a value stream analysis is complete and the main problems are understood, the next step is to develop a focused improvement plan that addresses key constraints. This might involve rebalancing capacity in constrained areas, improving material flow, enhancing information systems or streamlining workflows.

The key is to prioritise the changes that will have the biggest impact on your overall manufacturing efficiency.

5. Keep calm and carry on

Finally, manufacturing process improvement techniques will see you put systems in place to maintain the gains you’ve achieved. With a clear understanding of your value stream and a solid list of process improvement initiatives targeting your bottlenecks, you’re well-positioned to make significant cost reductions. However, it’s important to recognize that your team still has their “day jobs” to manage—fulfilling customer orders, completing operational tasks, and responding to inquiries—all of which can make implementing process changes a challenge.

Additionally, the changes you want to make will likely turn out to be more difficult than initially anticipated, take longer to complete, and involve unforeseen complexities. These challenges can sap enthusiasm for the changes, potentially stalling progress. This is where mature leadership is critical. As a leader, you will probably need to remind your team of the importance of these manufacturing process improvement techniques, provide resources where necessary, and continuously encourage them to push through the inevitable barriers they’ll encounter.

Achieving cost reduction is an ongoing opportunity. It's never “done”. Businesses that run profitable and growing manufacturing facilities aren’t simply asking ‘What’s our next sales order or project?” rather they continually ask ‘What’s the next best initiative to reduce costs and improve productivity?’

Every facility is different, with its own set of products, people and requirements. Reducing costs effectively isn’t a cut and paste exercise because it needs context. Like fitness, it won’t happen overnight, but slow and steady change has the power to win the race in a big way.

It is more than possible to achieve 20% cost reduction in manufacturing when you apply the right lean process improvement tools and techniques. If you want to fast-track your results, reach out to a consultant who can identifies your biggest roadblocks before helping you implement a plan to clear them.

Need help to identify cost reduction opportunities in manufacturing and apply process improvement techniques? Contact OE Partners today.

About Damien Lacey

Damien provides expert guidance to clients in areas including strategy development, lean production principles, process improvement, organisational transformation, business process redesign and the integration of continuous improvement practices.

A qualified mechanical engineer fluent in Japanese, Damien brings a wealth of experience from his tenure with Toyota, including a three-year assignment in Japan, where he honed his expertise in lean methodologies and learned directly from the greats.

Connect with Damien on LinkedIn.