Taking an analytical approach to managing costs can build the strength needed to weather a storm. Gareth Evans, Head of Engineering at MSC Industrial Supply. Co UK explains how to successfully emerge from a crisis.

The pandemic has undoubtedly hit manufacturers hard. Many companies saw sharp drops in demand, forcing them to cut operating costs, while others had to pivot quickly to produce sought-after products such as masks and ventilators. On top of this, every manufacturer is still seeing disruptions across their supply chains for parts and raw materials.

Cost-cutting was inevitable in the early stages of the pandemic as company leaders made urgent financial decisions that helped them survive. But businesses cannot easily grow in the months and years ahead unless they manage costs correctly.
 
There are lessons to be learned as we emerge from this crisis. Critically, manufacturers should consider cost-saving in a way that doesn’t divert funding from those parts of the business that could drive future growth – in short, the capabilities that differentiate your company in a competitive market. In a downturn, you must preserve and sustain your business, but make sure you do it in a way that helps you to grow in the longer term.

Calculating the total cost of ownership (TCO) or whole-life cost of any investment is vital. This enables you to make strategic, data-driven decisions about capital purchases and how they impact your bottom line. 

The TCO calculation shows you the cost of owning an asset over the long term by assessing both its purchase price and the ongoing costs of owning the asset. And it can incorporate the less obvious costs that flow down from an acquisition, such as certification and training.

Costs will vary with use and operating environment, and they are usually different for each company. Approaches to the calculation can vary, too, but a good starting point is to separate your inputs into three broad categories.

Firstly, the initial purchase price for the asset, plus any associated costs. For a new tool purchase, this might be the cost of the new machinery, any accessories or peripheral products, the cost of installation, and certifications or software licenses. 

Secondly, the ongoing costs for the machinery. This could include expenses that occur monthly, quarterly, or annually. These can be consumables used during machine operation, recurring license and certification renewals, maintenance and repair schedules, or periodic product upgrades.

The third input to consider is the opportunity cost. This incorporates the trade-offs in a purchase decision, such as the benefits you’ll sacrifice by making one investment over another. For example, leasing machinery instead of buying it may mean you gain some cash flow and have a lower initial outlay, saving money on depreciation and repair costs, but you may also end up paying more over the long term once all your costs are calculated. 

Breaking down your costs in this way can help you uncover any hidden expenses you may not have considered, helping you achieve a sophisticated understanding of your options for a purchase beyond its initial price tag.

Cutting or delaying capital expenditures may generally be the first move some companies make when facing a liquidity crisis, but it’s important to stay as strategic as possible during tough times. The idea is to save on costs in a way that will help you grow, help you differentiate your business, and help you stay ahead of your competitors.

Cost-saving techniques 

Manufacturers faced challenges due to the pandemic and there are ongoing supply chain issues. However, you should also recognise that this is a unique opportunity to pursue actions that will maximise your chances of long-term success. From investing in preventive and corrective maintenance of machines to identifying waste and bottlenecks within your operations, there are many opportunities to optimise.

Manufacturing companies looking to do more with less often choose quick cost reductions to get by, but this kind of approach may only mean small savings in the short term. Looking for ways to improve productivity is a more powerful approach. 

One of the most expensive resources in a manufacturing facility is machine time, so look at it strategically. For example, a tool that lasts at least as long as the one it replaces, but cuts cycle time in half, will help you save more money in the long run than simply purchasing cheaper tools to save money. Furthermore, continuing to use a tool that has reached the end of its life can actually increase costs by leading to more substandard parts or machining errors, which can lead to expensive downtime and waste. Either repair these tools immediately or discard them, replacing them with newer tools that will ultimately make you more productive. With this in mind, it’s worth inspecting your equipment periodically and taking the time to thoroughly clean it between operations.

As manufacturing companies improve their tooling, they’ll also want to update their workers’ skills. Your employees will need access to education and regular training sessions to keep up with the industry’s needs and to ensure they have the most advanced skills.

Long set-up times are another drain on productivity. These periods - including the breaking down and loading of parts and tools - add no value to your operations and should be as short as possible. You can shorten them with techniques such as the smart organisation of tools near your equipment, or pre-planning machine set-ups. You could also invest in toolpath simulation software, standardised toolsets or offline pre-setting. 

The more reliable your equipment is, the more uptime you’ll get. Unreliable or outdated equipment that lets you down when you’re trying to finish an important job should be avoided. Having equipment that can tell you when it’s going to fail or needs attention can minimise your downtime and maximise your productive output.

Continuous monitoring of machine health can help you achieve this. For example, the technology that monitors a spindle for abnormalities in real time using sensors can reduce scrap and improve productivity, helping prevent damage to machines. Reliable, real-time data and analytics mean you can take some risks without undue side effects and avoid a costly shutdown.

Manufacturers who want to move into automation should consider cost-effective applications that can solve the common issues leading to unexpected costs and inefficiencies. These applications could include machine vision systems for measuring, inspecting and organising parts and components, feeders for sorting components on an assembly line, or even collaborative robots (cobots) that are designed to work alongside humans on the shop floor.

Spotting growth drivers

As the crisis plays out, manufacturers should look more deeply at their business operations. Redirecting funds to the right growth drivers, for example, can build the strength needed to weather the storm and emerge from the crisis stronger.

PwC advises that you start by setting yourself some simple questions:

1. How has your market changed? What’s happened to your customers, suppliers and competitors? What market trends or disruptors have accelerated? 
2. Which value propositions look promising in a post-COVID-19 world? 
3. Can you articulate the few things your organization needs to do better than anyone else to meet those value propositions? What will your competitive advantage be? 
4. Are you investing enough in those few things? Where do you need to spend less so you have the funds to redirect costs to value-creating differentiation? 

The strengths that distinguished your company before the pandemic may not be the ones that work in the post-crisis world. 

To determine your strengths in a new environment, ask yourself the questions above to quickly frame your priorities. Strengthen in these areas to optimise growth. Now is a perfect time to invest in your company’s evolution.