Cost Reduction in Manufacturing Industries
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Transcript of Cost Reduction in Manufacturing Industries
COST REDUCTION IN MANUFACTURING
INDUSTRIES
OPERATIONS MANAGEMENT
GROUP MEMBERS
Muhammad Atif Khan 52387 Sami Aslam 52390 Zohaib-ur-Rehman khan 52400
PRESENTATION CONTENTS
INTRODUCTION TO COST COST REDUCTION ADVANTAGES OF COST REDUCTION COST REDUCTION STRATEGIES EXAMPLES IN MANUFACTURING
INDUSTRIES CONCLUSION
COST
Cost
Profit
Price
Price = Cost + Profit
Cost Reduction
Cost can be reduced through Reduction (prod time, waiting, inventory) Elimination (waste, bottle necks, barriers)
Modification (system, design) Innovation (Re-engineering, methods of
producing, equipment, tooling)
COST REDUCTION RESULTANT
INCREASE PROFITS REDUCE WASTE INCREASE PRODUCTIVITY COMPETITION RESOURSE CONSERVATION IMAGE ENHANCEMENT
COST REDUCTION AREAS
RAW MATERIAL PROCUREMENT & LOGISTICS (SCM)
DESIGN & DEVELOPMENT MANUFACTURING (PRODUCTION) ENERGY HUMAN RESOURCE SALES & MARKETING
COST REDUCTION STRATEGIES
COST REDUCTION BY DESIGN COST REDUCTION BY LEAN MANUFACTURING COST REDUCTION BY OVERHEADS COST REDUCTION BY STANDARDIZATION COST REDUCTION BY PRODUCT
RATIONALIZATION COST REDUCTION BY SUPPLY CHAIN MGMNT COST REDUCTION BY TOTAL COST
MEASUREMENT
COST REDUCTION STRATEGY
COST REDUCTION BY DESIGN
Product development determines 80% of product cost
Cost is controllable in design phase
COST REDUCTION STRATEGY
HOW TO REDUCE COST BY DESIGN Design for manufacturing Tool & Die design (Software predict the design
quality) Design for lean Design for quality (Use quality tools)
BENEFITS Cost of part Labor cost Reworking cost Maximize quality
COST REDUCTION STRATEGY
COST REDUCTION BY LEAN MANUFACTURING
LEAN provides a way to do more & more with
less & less
It accelerates production by elimination of
wastes (Handling, waiting, inventory etc)
It improves throughput by 90%
COST REDUCTION STRATEGY
HOW TO REDUCE COST BY LEAN MANUF. Implement LEAN production Flow Manufacturing
●Single Piece Flow Manufacturing
●Cellular Manufacturing
BENEFITS OF LEAN MANUFACTURING
Elimination in Waste of handlingWaiting InventoryLabor hr Reworking & Rejection
What is Overhead cost
Overhead costs for a business are the cost of resources used by an organization just to maintain its existence. In business, overhead, overhead cost or overhead expense refers to an ongoing expense of operating a business.
Examples of overhead costs include:
Payment of rent on the office space a business occupies
Cost of electricity for the office lights Some office personnel wages Cost of consumables
How to Reduce Overhead Cost:
By implementing Build-to-Order and Mass Customization we can reduce the overhead cost.
Build to orderOften abbreviated as BTO and sometimes referred to as make to order (MTO), is a production approach where once a confirmed order for products is received, products are built. This approach is considered good for highly configured products, e.g. computer servers, or for products where holding inventories is very expensive, e.g. aircraft.
Mass CustomizationMass customization refers to a customer co-design process of products and services which meet the needs of each individual customer with regard to certain product features.
Benefits of Build-to-Order Production
Reduces manufacturing costs—particularly in engineering.
Makes it easier to plan and forecast material requirements.
Eliminates finished goods inventory. Finished orders ship directly to the customer usually upon completion.
Increases operating margins. Boosts on-time delivery.
Benefits of Mass Customization
By providing tailored products to meet particular needs, you shift the focus from price to benefits.
Whilst it is possible to manufacture at a mass produced price, you have the option to charge a premium whilst still retailing below the price of a custom product. This in turn will open your product to a wider market.
What is Standardization
The procedure of maintaining methods and equipment as constant as possible.
Standardization is the process for select better choices and ratificate this consistent decisions, as an obtained standard.
How to reduce standardization cost
Rationalize products to eliminate or outsource the most unusual products that have the most unusual parts and materials
Total cost measurements to justify standardization efforts and encourage picking standard parts
Don’t merge acquired products into the same plant or build others’ products
Benefits of Standardization
Purchasing costs reduced through purchasing leverage
Inventory cost reduction Overhead cost reduction Vendor reduction Inventory reduction Parts availability
Supply Chain Management Cost Reduction
SCM is responsible for goods and services from raw material to finished goods, suppliers, vendors etc
How to reduce cost by SCM
Design products around standard parts to simplify Supply Chain Management
Standardize parts to focus Supply Chain Management on high-volume, easy to get parts
Advantages of cost reduction by SCM
Reduction in material overhead Reduction in inventory Automatic re-supply eliminates forecasts,
purchase orders, inventory, and expediting costs
Reduction in logistics (transportation cost)
Cost Reduction by Quality
Quality cost reduction determines Cost of Quality (COQ)
COQ includes all reworking, rejection, quality equipment, standardization, quality people, quality of products or service and time
How to reduce cost by Quality
Eliminating quality costs starts with designing in quality
Quality costs can be eliminated with Six-Sigma programs
Avoid wasting quality resources on inherently lower quality products
Use of quality tools in production & design Process control by process capability
Advantages of cost reduction
Increase in quality of product or services Customer satisfaction and reliability Product durability Decrease in cost of quality Decrease in production cost
EXAMPLES IN MANUFACTURING
INDUSTRIES