The most common question supply chain professionals get from clients is “How can we reduce the cost of this project?”  Cost reduction is always a challenge – especially in a low volume, complex manufacturing environment.

Cost reduction efforts can be counterproductive in the long run if they don’t build and support a flexible supply chain. Although materials and logistics costs are the most obvious and biggest chunk of project spend, the manufacturing process has hidden costs that could be avoided by providing the supply chain with visibility to perform at their best.

Costs have different impacts in high and low volume manufacturing. High volume manufacturing has high repeatability of common and specialized tasks. Standard procedures specify how each part of the job will be performed with expected takt times for each part of the process. The supply chain is driven to lower the cost in all production activities. Materials are purchased in a large scale and logistics services are available at lower cost. These factors support an end to end process that results in a lower per unit cost.

In contrast, low volume manufacturing has low repetition tasks, highly trained professionals who perform a wider range of specialized tasks, and a batch based approach to assembly. Materials are bought in small quantities with higher freight charges. This has a significant impact on per unit cost.

Here are four ways to ensure your supply chain avoids hidden costs and you have a trouble-free small scale manufacturing process.

• Customer needs

Supply chain structure and strategy should be driven by customer needs. Some supply chain processes in smaller facilities are not set up to maximize flexibility. Their ERP infrastructure may not facilitate customizing the supply chain to client needs. This can result in unnecessary costs and customer complaints. An example would be paying extra for next day delivery when your customer doesn’t need or want it. Take the time to better understand your customer’s manufacturing needs and design a supply chain strategy for each project that also addresses shortfalls in your systems and processes.

• Visibility is the key

Flexibility requires visibility. Supply chain professionals and executives often lack operational visibility to make the right calls to match client demand. Poor planning and an undefined forecast creates a rush to acquire materials and plan for space and labour. That translates into extra costs for freight, expediting, hiring and process engineering. A low volume manufacturing environment has no need for complex sales and operations planning. But keeping clear communications with all stakeholders will reduce unnecessary expenses and ensure your facility is ready for the build.

• Double check your ERP (Enterprise Resource Planning)

Ensure your ERP is set up properly prior to executing on materials purchases. It may seem like a time consuming activity when all you want to do is order those urgent parts, but spending time to ensure the BOM is correct, suppliers are identified and tied to their parts, and lead time information is accurate can save you a ton of time down the road and prevent the purchasing cycle from going off the rails. If no time is allocated for these validation activities at the demand planning stage, your project will be open to incorrect inventory data, billing problems, product costing problems and missed buys that could impact the project timeline. In the end you will spend more time and money correcting issues than if you had just reviewed everything properly up front.

• Avoid Playing “Telephone”

“Telephone” is the children’s game where one child whispers a message to another and in turn that child relays the message to the next one in line. The last child in line receives all the other children’s interpretations and the message becomes distorted and completely different to the original message.

In a purchasing environment there is no space for misunderstanding and miscommunication. All documentation needs to be clear for the buyer and the supplier. Most of the time, the people that are negotiating the purchase do not handle the fabrication, so all requirements should be clearly stated in the drawings. This sounds very simple, but anyone who works in purchasing or engineering knows that countless hours are already spent clarifying materials requirements.

The purchasing team can take this farther by setting up Quality Agreements with suppliers to emphasize the importance of special requirements for critical parts. Even with quality agreements in place, it’s important to make sure the engineering drawings have all required specifications on them. After all, these drawings are the instructions that will be used on the part supplier’s production floor.

Clarity between engineering and purchasing, and further clarity with suppliers will reduce the chance of buying incorrect parts.

By performing these basic steps, the supply chain can draw a customized plan for each project and eliminate the need to explain extra material costs.