COST REDUCTION IN MANUFACTURING INDUSTRIES OPERATIONS MANAGEMENT
GROUP MEMBERS
Muhammad Atif Khan
52387
Sami Aslam
52390
Zohaib Zohaib-ur -ur-Re -Rehma hman n khan khan 52400 52400
PRESENTATION CONTENTS
INTRODUCTION TO COST
COST REDUCTION
ADVANTAGES OF COST REDUCTION
COST REDUCTION STRATEGIES
EXAMPLES IN MANUFACTURING INDUSTRIES
CONCLUSION
COST
Price = Cost + Profit Cost Profit Price
Cost Reduction Cost can be reduced through
Reduction (prod (prod time, waiting, inventory) inventory )
Elimination (waste, (waste, bottle necks, barriers)
Modification (system, (system, design) 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 (SCM))
DESIGN & DEVELOPMENT
MANUFACTURING ((PRODUCTION 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 handling
Waiting
Inventory
Labor 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 order Often abbreviated as BTO and sometimes referred to as make to order ( order (MTO), 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 Customization Mass customization refers to a customer co-design process of products and services which meet the needs of each individual customer with customer with regard to certain product features. 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 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))
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 SixSigma 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
