4Thought Blog

4_thought_blog_graphic-red_border_-_sides_only.jpg

Track Inefficiencies in Manufacturing to Control Costs

Posted by Concannon Miller on Tue, Aug 27, 2019

Find me on:

Engineers in mechanical factory reading instructionsIf you're like most manufacturers, you don't track order-processing. Yet focusing on this performance metric can identify operational inefficiencies that are cost-cutting opportunities. And continued monitoring lets you keep those costs in check and predict future outlays.

Customer order management means different things to different people. It may be limited to account processing and the activities involved in the entry, maintenance and fulfillment of orders. Some of the tasks include pricing, managing customer credit, checking parts availability, inquiring about order status, invoicing and processing accounts receivable. In other words, customer order management includes every process from order to payment receipt.

Lehigh Valley Manufacturers' Guide for GrowthYour company needs to develop a blueprint that delineates the tasks to be measured.

Tracking begins with a specialized enterprise resource planning (ERP) system or online workflow management program that can capture the workflow transactions involved in order processing. This is done in much the same way as you'd measure non-linear workflow in the production setting. As orders move from one person or terminal to another, they are automatically time-stamped and the number of times an order "changes hands" is recorded.

READ MORE: Lean Manufacturing: 8 Steps Manufacturers Should Consider to Reduce Waste

Here's an example to consider:

One award-winning manufacturer conducts weekly reviews of order management and other logistics of costs and performance.

Data is gathered and analyzed using the same parameters that companies typically use on the manufacturing floor — first-pass yield, cycle time and on-time delivery. Every Friday at 3 p.m., the results are reviewed and problems are discussed and worked out.

An analysis of the workflow metrics is handled by a business intelligence program that gives a non-IT person, such as a COO, the ability to "slice and dice" the data into a meaningful report. As the system gathers data over time, you'll have a performance and cost record that can be used to analyze and fix inefficiencies. This on-going analysis becomes an important tool for continuous improvement and forecasting.

The visibility that tracking brings to order-processing reveals costly patterns that provide a basis for planning and scheduling. Furthermore, in discussions of order-processing, tracking offers objective data that puts everyone on the same page.

WATCH: Lean Business, Accounting Processes to Gain Capacity (Video)

Tip: Consider using a system that manages data about customer buying behaviors along with tracking order-processing. Customer profiles and order histories enable you to develop sales strategies based on demand and forecast opportunities to cross-sell and up-sell.

While computer programs are essential for gathering data, analyzing complex processes and providing routine monitoring, don't overlook the human element. Make order-processing improvements a priority, and charge a team of stakeholders with streamlining the process.

You can learn a great deal about your operation when you know, for example, the steps involved in entering a new order. How many departments and individuals handle the order? How many pieces of paper change hands? What happens when an order changes? This lets you determine where bottlenecks exist and what transactions need to be changed, eliminated or added.

Concannon Miller works with manufacturers on both tax strategies and operational efficiencies, including lean techniques. Learn more here.

Sign up for more Timely Tips for Businesses

© 2019

Topics: Manufacturing

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

Subscribe for more Timely Tips for Businesses

Recent Posts