Manufacturing Efficiency

One of the most common errors start up businesses make is to charge the consumer the cost they need to break even from a low output, high cost production process. It’s very understandable why an entrepreneur would feel the need to set RSP at €5.00 for a product that is niche, artisan, locally produced and has points of uniqueness and individuality and you need every cent of the €5.00 to break even. Your target consumer doesn’t know the process is low output and high cost but they do have a fair idea what they’d be prepared to pay for a product that arouses their interest. He / she currently buys the perfectly acceptable multi-national produced equivalent for €2.99 but loves loves loves your new product and your story but struggles to justify the additional 60% expenditure and as a result you remain stalled in a niche position and with an uncertain future. You’re making a small % profit but on low sales, the reality is that it’s money not worth having for the effort.

This is where the skillset and techniques described on this page come in. If you know in advance what the cost of production would be at the scale of manufacturing justifiable by your growth plans and you’re backed by the confidence of excellent market research; what you do is start manufacturing at micro scale for first market or limited distribution real world exposure; but use the production cost and associated RSP that you know you can achieve if the sales and market share you expect are delivered. As you’re not hamstrung by an artificially high RSP, when the real world sales your product deserves are achieved; invest in the higher output, more efficient process to bring the costs in line and expand to full market distribution or additional markets.

Lean Manufacturing

Lean is not a treatment; it’s a culture. When businesses see lean as key and embrace it and make it core to the way they think and behave; an amazing transformation happens. It starts by seeing every employee as belonging, as an asset, as family, as core to the operation as the building itself. Through patience and understanding, training, and by building their capability to own their process, identify problems and opportunities for improvement; everything changes. Result, outcomes, defects, problems and success are visible. Instead of the senior management caring about results; everyone does. Ideas for improvements surface, projects are worked on and there is real fulfillment from working together.

Lean manufacturing refers to the application of Lean practices, principles and tools to the development and manufacture of tangible products (and to services). Fruits include lower cost of production, reduction of waste, faster turnarounds, lower inventory and working capital, greater problem solving, higher quality, faster time to market and greater innovation. Spill over effects are lower personnel turnover, greater happiness at work, stability in the organisation, greater visibility of metrics, better work – life balance and much lower stress levels.

I don’t claim to be the world’s foremost Lean expert but I do have a Green Belt in Lean Manufacturing Six Sigma and more importantly; taking the lean culture view is something I do automatically as part of everything I do and I have run specifically lean focused projects for clients. Being competitive today and even running a business today without embracing the lean culture is unthinkable. Get in touch if you’d like to talk about what I might be able to do for your business.

Process Design

Stage 1
You’ve got a product. It’s a good product and your customers love it. You’re making it largely by hand with the use of semi – manual pieces of equipment at hotel or restaurant kitchen scale. Great.
Your production is low capacity, labour intensive, very people – dependent to achieve quality attributes and get product out the door. The unit cost of production is variable and high. Capacity is limited. Not so great.

Stage 2
You realise that to grow your business you need a process with higher capacity, that is more efficient with lower costs of production and where product quality is not as dependent on the personal involvement of people.

Stage 3
This is where you need to do a lot of thorough ground work looking at all the options, testing equipment in a real life production environment. You need to look at cost, output, the time it takes to get it up and running and producing acceptable product, compatibility and controllability to the previous and next stage, ease and intuitiveness of assembly and disassembly, health and safety, foreign body and hygiene risk factors, accuracy and consistency and how well it does the job that you need it to do from a quality control perspective, the maintenance program and spare part list required, the cost and lead time of additional tooling, whether the piece of equipment is EU – certified, local support, back up and lead time in the event of a breakdown.

If you you need some support with any of the above; it’s good to talk. Get in touch for a conversation.

Upscaling

You’ve come up with a great product and a great concept. People like it, things are going well. You rented a start up unit, bought equipment, hired three people and started supplying customers. Now that volumes have grown off a low base, complexity seems to be affecting you more than before. Success beckons. Your production unit is too small, your output is too low and the inefficiency is hurting more than before. Volume looks likes it’s going to mushroom. You don’t want to let customers down. You’re attracting attention from overseas markets. You need to step back from the day to day a bit but you’ve made yourself indispensable to making the product. You don’t want to knee jerk into doing what you’re doing except on a bigger scale. You need to make a big move to your own manufacturing unit but it needs to be the right unit that meets all food safety standards that you will be measured against in the future. The process and equipment you choose needs to be well researched so that upscaled manufacturing doesn’t compromise on the product attributes associated with your brand. Your factory layout, fabrication, services and zoning needs to meet the highest standards. The factory needs to be easy to run with a minimum of staff and have the capacity to meet your five year plan. You need a management process that takes care of receipt, inventory control, production, quality and food safety management, traceability, waste management, efficiency monitoring and more in one system. If you’d like to have a chat; get in touch.

Cost Modelling

It’s hard to see the wood for the trees sometimes. Understanding accurately which products make and which lose money is obviously vital for survival. You either fix or delete the ones that don’t and see if you can improve the profitability of already profitable skus. But if you don’t know clearly what makes and what loses money; you could unintentionally be a busy fool.

Cost Modelling is a simple, accessible and easily understandable way to accurately record in a spreadsheet how much it costs to make a given product sku. Manufacturing costs are broken down by direct inputs like recipe ingredients, labour, packaging and direct overheads and are modulated by waste levels, yields, process losses, overall equipment efficiency. Warehousing and outwards supply chain costs and indirect costs such as management structure, sales and marketing overheads, energy, maintenance, capital repayments etc. are then over-layered on top. A normal or desired level of nett profit is added on top to give a required selling price. The overall cost of production is then compared to the nett selling price to determine profitability.

All of the above it fairly standard fare that most established companies already does routinely, reporting on all of the above monthly if not weekly. Where it gets interesting is the application of specialist prepared food industry knowledge to creatively explore how to transform manufacturing costs; for example by producing larger quantities less frequently to min – max buffer stock instead of to order; comparing the cost of a full shift of production versus production of what the customer ordered; removal of bottlenecks; upscaling; use of alternative technology to make the same product at a higher rate of output and lower cost; what the impact of gorwth in volume will have on the ability to reduce raw material costs through inward supply chain measures and through negotiation. All of the above and more can be accurately cost – modelled to accurately predict the outcomes on paper before investing in the work itself.

Project Management