Success in reducing manufacturing costs is a multi-tiered effort that includes better management of processes, production, employees, and customer expectations. Reducing the manufacturing cost base is something that Mary Frances Cox, senior vice-president at Schneider Electric North America, knows a lot about. Schneider Electric, since 2001, has saved $237 million by instituting cost-saving initiatives.
According to Cox, U.S. manufacturers must face the reality that they are indeed competing in a global economy. New challenges are surfacing everyday, from both foreign and domestic competitors, that require solutions which must be formulated more quickly and with more flexibility than manufacturers are used to.
"Analyze and understand the costs within the value stream and constantly work to optimize those," said Cox. "Then engage everyone in the organization in facing the challenges." Cox believes that involving employees in identifying opportunities and solutions is critical to an organization's growth and efficiency.
Customer-driven initiatives
Schneider Electric focuses on three main customer-driven initiatives in their cost-saving process: cycle times, on-time deliveries and product quality.
Cycle time is the time it takes a product to be ordered by a customer, assembled by the manufacturer and shipped to the customer. When the cycle is shortened, customers find the experience increases their trust in the manufacturer. Schneider Electric found this to be the case when they launched a new logistics strategy aimed at shortening cycle times. By relocating their distribution services to Athens, TX, they reduced the time and transportation costs to reach their customers.
On-time deliveries: Schneider Electric strives to ensure that deliveries are consistently on-time. "When deliveries occur on-time, customers are satisfied and trust they will have the same experience on their next order," said Cox. "When on-time deliveries are not met, costs are incurred throughout the entire supply chain. Time is spent on the phone, sending e-mails, checking records, checking docks and stocking locations, and the list goes on. The bottom line is that none of the activity is adding value. It represents unnecessary costs and effort and ultimately leads to customer ill-will."
Product quality develops from customers demanding the highest quality product available. The better the quality of the product manufactured, the less cost is incurred to everyone. Product quality is not just about meeting product specifications, it's also about anticipating and meeting customers' needs.
Process-focused initiatives
Process-focused initiatives offer further opportunities for cost reductions through the adoption of lean manufacturing, Six Sigma and continuous improvement.
Lean manufacturing is an initiative aimed at eliminating all waste in the manufacturing process. Its goal is to use less human effort, less inventory and less time to make products in less space. The initiative focuses on becoming highly responsive to customer demands while producing top quality products in the most efficient and economical manner possible.
Six Sigma uses structured application and statistical tools to reduce variation and eliminate defects and is applied on a project-by-project basis to meet each customer’s needs. Six Sigma uses the DMAIC approach – Define, Measure, Analyze, Improve and Control – where each project is reviewed throughout the process and specifically at the end of each stage. Through this structured approach, Schneider Electric determines and eliminates the root cause of the manufacturing problem. This ensures that they truly solve a problem, rather than just applying a ‘quick fix’ only to have the problem re-occur.
The final initiative in the process focus is continuous improvement. This initiative is a process driven toward what the customer values and eliminating those things that the customer does not value. "Continuous improvement begs the questions, ‘How do I get a little better today from what I did yesterday?’" said Cox. " 'How do you continue to grow and maintain that drive to keep moving forward without falling back into your old ways?' We always need to look for ways to improve our process and provide flexibility, allowing us to extract a premium in the marketplace."
Product-focused initiatives
Product-focused initiatives cover cost savings from a pruning, design standardization and purchasing perspective.
Pruning is an initiative aimed at reducing the offerings and choices of your product to better fit the needs of your customer. Schneider Electric’s North American Operating division has saved significant dollars by pruning back the same product offerings in different markets, as well as trimming down the number of its suppliers and shutting down redundant or inefficient plants.
Design standardization is an area of product focus that involves standardizing the design of your product to best fit the demands of your customer. By standardizing the design of your product, you buy fewer materials, which lowers your costs. Also, it allows for ‘late differentiation’ of a product to customize it to the specifics of a customers’ need. "We can offer our customers standardized products and even add a last minute request because we have flexible designs and processes in place," explains Cox. "That way we are assured of conforming to the needs of our customers."
The purchasing initiative centers on what materials are purchased from where, to ensure the best value is available to the customer. Schneider Electric’s North American Operating Division has shaved significant costs in this area by using a strategy called localization. The idea behind this concept is that companies buy or try to buy within a ‘low-cost country’ where suppliers are closer to the location where the goods will be used.
Schneider Electric was faced with a similar situation with its Asheville, NC plant. The company had been building products at this site for years, and maintained its existing supply base in the U.S. The company then determined it would be more cost-efficient to move the supply base to Mexico.
"We knew this decision would shorten the supply chain and eliminate border-crossing delays and fees," said Cox. "The move also reduced transportation, material costs and inventory. The end result is a leaner, more flexible and lower-cost supply chain."The people perspective — The most important cost-saving initiative
The “people perspective” is characterized as the most important cost savings opportunity at Schneider Electric. There are three areas of the people perspective: safety, training and employee involvement and engagement.
Schneider is committed to safety and has made it their number one mission to create the safest work environment possible for their workers. "We are proud of our safety numbers at Schneider Electric North American Operating Division," said Cox. "In fact, our numbers are the best in the industry and among the best in the country."
In 2005, the company reduced its medical incident rate by 33 percent