June 10, 2014 / benchmarking, best practices, blade failure, bottlenecks, continuous improvement, Cost Management, customer delivery, human capital, LIT, maintaining talent, productivity, quality, root cause analysis, Safety
When quality hiccups or bottlenecks occur, the first instinct is to blame the machine. A quick blade replacement or tooling adjustment is the go-to response, and in the short-term, the problem is addressed. Production continues, and the order is eventually filled.
However, industrial metal-cutting leaders know that quick fixes are not doing anyone any favors, especially when quality is involved. Fabricators with high quality standards need to be sure that all areas of their cutting operation are optimized; otherwise, their costs are going to go through the roof. For instance, an operator that doesn’t understand the proper speed setting for a specific type of metal might end up going through a half a dozen blades to maintain a square cut, when the job should have only required two blades.
The harsh reality is that today’s customers are demanding tighter tolerances and higher quality without the added cost. While it is tempting to make knee-jerk responses to meet tight timetables, fabricators that want to remain competitive need to focus on long-term solutions to improve cut quality. Really, you can’t afford to do it any other way.
With the right strategies in place, maintaining premium cut quality doesn’t have to cost a premium. Here are a few to consider:
- Evaluate your operators. Sometimes the root cause of quality or cost issues isn’t what it is cutting your metal; it’s who is cutting your metal. According to research from ARC Advisory Group, the global process industry loses about 5% of annual production due to unscheduled downtime and poor quality. But here’s the kicker: almost 80% of these losses are preventable, with 40% largely due to operator error, ARC estimates. When problems arise, don’t fail to consider the human variable. A lack of skill sets, business knowledge, and low employee morale can affect quality, as well as other areas like cost, maintenance, and safety. One way to address this is by implementing a strong ongoing training program, either internally or with the help of a trusted supplier. To read about more strategies for attacking the human variable, check out the white paper, Accounting for Operator Inefficiencies in the Metals 2.0 Environment.
- Break in blades. According to LIT’s benchmark study, breaking in band saw blade is a best practice among fabricators and other industrial metal-cutting companies. According to the study, 45% of organizations surveyed reported they “always” break in blades, 30% said they do it “most of the time,” and 15% said they do it “occasionally.” While breaking in a blade may seem tedious, highly skilled operators know that it pays off in the long run. A new band saw blade has razor sharp tooth tips, and in order to withstand the cutting pressures used in band sawing, tooth tips should be honed to form a micro-fine radius. Failure to perform this honing will cause microscopic damage to the tips of the teeth, resulting in reduced blade life and poor-quality cuts. Completing a proper break-in on a new blade will dramatically increase its life and cut performance.
- Communicate. As this Quality Digest article states, quality is no longer a topic for the Quality department; it should be a company-wide mindset. Talking to operators and maintenance personnel about how their actions affect quality—and then holding them accountable—promotes a bigger picture understanding of the role everyone plays in company success. You may even want to consider including a few key shop floor employees in quality meetings. According to the QD article, a growing number of companies are developing internal cross-functional quality councils that pull in personnel from across the value chain to gain different perspectives and identify new solutions to problems. This type of management encourages employee “buy-in” and creates a team atmosphere— both of which can help build a commitment to quality.
May 25, 2014 / benchmarking, best practices, blade failure, blade selection, continuous improvement, Cost Management, cost per cut, lean manufacturing, LIT, operator training, preventative maintenance, productivity, quality
As any industrial metal-cutting leader knows, optimization is not only about high-level thinking and strategy. In a manufacturing environment, it often starts with having the right tools for the job.
In band saw cutting, for example, proper blade selection is key to optimizing cut times, cut quality, and blade life. This is especially true when cutting tougher metals like super alloys, and it is even more critical when cutting forged materials, which require aggressive blades that can get underneath any scale buildup. While a low-cost blade may get the job done, the “right” blade should be efficient, effective, and reliable. It should help keep tooling and maintenance costs under control, quality high, and production flowing.
In some cases, optimization may mean upgrading tooling and equipment. For example, one metal-cutting company featured in a white paper from the LENOX Institute of Technology (LIT) found that switching from a bi-metal to a carbide-tipped band saw blade provided a substantial improvement in productivity. With the bi-metal blades, the company was having difficulties cutting stainless steel and was missing productivity goals. However, after switching to the carbide-tipped blade, the company reduced cut times by one half and doubled blade life. While the short-term cost of the newer blades was higher, the long-term productivity benefits made it a worthwhile investment.
However, new tooling isn’t always the answer. As this IndustryWeek article explains, a common misconception among managers is that getting “leaner” requires investment. “Lean is not about spending money,” the article states. In fact, the IW author says that “proper lean mindset first looks to avoid spending the capital in the first place.”
While it is fundamentally important to have the right tool for the job, proper utilization of the tool is just as important. In fact, it could help save you money. If you are a forge that cuts and processes metal, here are a few tips and tricks we gathered to help you optimize your cutting operations:
- Use the proper speed rate. Band speed refers to the rate at which the blade cuts across the face of the material being worked. Faster band speeds can lead to faster cutting rates. However, band speed is restricted by the machinability of the material and ultimately heat produced by the cutting action. Too high a band speed or very hard metals produce excessive heat, resulting in reduced blade life. You can determine if you are using the right band speed by evaluating the shape and color of the metal chips. The goal is to achieve chips that are thin, tightly curled and warm to the touch. If the chips have changed from silver to golden brown, you are forcing the cut and generating too much heat. Blue chips indicate extreme heat, which will shorten blade life.
- Use the proper feed rate. Feed refers to the depth of penetration of the tooth into the material being cut. For cost effective cutting, you want to remove as much material as possible as quickly as possible by using as high a feed rate/pressure as the machine can handle. However, feed will be limited by the machinability of the material being cut and blade life expectancy. As with the speed rate, you can determine if you are using the feed rate by evaluating the shape and color of the metal chips. Overall, the proper speeds/feeds combination should produce chips that form the shape of “6’s” and “9’s.”
- Remember to lubricate. Lubrication is essential for long blade life and economical cutting. Properly applied to the shear zone, lubricant substantially reduces heat and produces good chip flow up the face of the tooth. Without lubrication, excessive friction can produce heat; high enough to weld the chip to the tooth. This slows down the cutting action, requires more energy to shear the material and can cause tooth chipping or stripping which can destroy the blade. Unfortunately, many operators fail to perform this basic maintenance task because they don’t fully understand how lubrication can affect cut quality and costs. For a great training resource on the importance of metal-cutting fluids, check out this video from the Society of Manufacturing Engineers.
- Break in your blades. A new band saw blade has razor sharp tooth tips. In order to withstand the cutting pressures used in band sawing, tooth tips should be honed to form a micro?fine radius. Failure to perform this honing will cause microscopic damage to the tips of the teeth, resulting in reduced blade life. Completing a proper break-in on a new blade will dramatically increase its life. According to LIT’s benchmark study, this is a best practice among industrial metal-cutting companies. According to the study, 45% of organizations surveyed reported they “always” break in blades, 30% said they do it “most of the time,” and 15% said they do it “occasionally.”
For more cutting tips and tricks, you can download the complete white paper, Understanding the Cut: Factors that Affect the Cost of Cutting, here.
April 28, 2014 / continuous improvement, Cost Management, human capital, industry news, lean manufacturing, LIT, predictive management, preventative maintenance, strategic planning
For most of the industrial metal-cutting industry, things are staring to look up. Earlier this month, the World Steel Association released its Short Range Outlook for 2014 and 2015. The forecast projects that global apparent steel use will increase by 3.1% in 2014 and by 3.3% in 2015. Regional projections are also positive. While the U.S. showed a decrease of -0.6% in apparent steel use in 2013, the global association forecasts that apparent steel use in the U.S. will grow by 4.0% in 2014 and by 3.7% in 2015.
However, even with its positive forecast, World Steel expects continued volatility and uncertainty to create a challenging environment for steel companies this year. And many metals executives are feeling that uncertainty. As stated in LIT’s 2014 Outlook for Industrial Metal-Cutting Companies, most industrial metal-cutting companies are only cautiously optimistic about today’s market.
This is especially true of many forging industry executives, who were encouraged by sales increases in 2012, only to be disappointed with no growth and some decreases in 2013. Specifically, the Forging Industry Association (FIA) reports that total industry shipments for the custom impression die forging industry were at $7.313 billion in 2013, down slightly from $7.337 billion in 2012. Meanwhile, 2012 total industry shipments by the custom open die forging industry were 15% below 2012, and shipments for the custom seamless rolled ring forging industry were basically flat. (You can view FIA’s final sales data here.)
As forging executives move into the second quarter, there are some trends unfolding in 2014 that they should be watching closely. A recent column from IndustryWeek does a good job of describing five higher level trends that are affecting most of the manufacturing industry. These include the following:
- Increased reliance on automation and robots
- Rapid prototyping
- Smaller orders
- Leaner factories
On an operations level, there is perhaps one prevailing trend—the relentless push for continuous improvement. In an uncertain market, operations managers are realizing they have no choice but to optimize and become more agile. In some cases, this requires capital investment, but many industry leaders are discovering alternative ways to improve operations. LIT’s benchmark study of industrial metal-cutting companies, for example, identifies three key areas where managers can make improvements without adding new capital expense:
- Invest in Smarter, More Predictive Operations Management
- Embrace Proactive Care and Maintenance of Tools & Equipment
- Invest in Human Capital
Of course, there is no crystal ball for what 2014 will bring, and as the last few years have taught manufacturing executives, nothing is ever certain. In the end, the key will be for forging companies to strategically consider industry trends (i.e., smaller orders), while also proactively improving what is happening inside their doors.
April 10, 2014 / continuous improvement, Cost Management, industry news, LIT, strategic planning
Late last month, the LENOX Institute of Technology (LIT) published its 2014 Industrial Metal-Cutting Outlook. Echoing the sentiments of many industry analysts, the report expects 2014 to be another year full of uncertainty. Metal fabricators, as well as every other manufacturing segment, are finding it difficult to anticipate what this year might hold, which makes planning extremely challenging.
There are, however, several trends that fabricators should keep in mind as they attempt to strategically navigate this unpredictable market. Here are a few we gathered from the industry’s top resources:
- Government Setbacks Continue. As pointed out by Dan Davis in a recent blog from thefabricator.com, a lot of today’s market uncertainty stems from political dysfunction. As Davis states, “the government can’t get out of its own way,” which is why many business leaders are “increasingly calling on Congressional leaders to work together to chart some sort of course for the future.” In all reality, political games are likely to continue this year, which means manufacturers shouldn’t expect the government to help the economy grow in 2014.
- Wages and Costs Will Rise. Dr. Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association International (FMA), predicts that costs will rise across the board by mid-year. “The producers of metal and other raw materials have been reducing production to bring supply in line with demand,” Kuehl states in an FMA forecast report [LINK] published in late December. “Wages will rise for the people needed as they will be in short supply, and any pickup in business will make them that much more valuable.”
- Some Growth is Expected. There is some good news. Most reports expect at least some growth in production over the next two years. According to the latest outlook from MAPI, fabricated metals production is forecast to post moderate gains of 4% in both 2014 and 2015. The manufacturing organization also reports that nearly all major types of fabricated metal products have shown production increases in the three months ending January 2014 relative to the same period one year ago. Forging and stamping was up 4%, architectural and structural metals rose 4%, machine shop turned products and fasteners grew 6%, and coating, engraving, and heat treating grew 1%.
- Improvement Continues to be Critical. While the MAPI numbers may not be indicative of a full rebound, they give some indication that there is opportunity for growth, especially for companies focused on improving the one thing they can control—their operations. Lean techniques and technology investments will continue to be important strategies for managers to consider, but as this white paper from LIT states, optimization starts with your operators. Ongoing training is key for existing employees and becomes even more critical for new employees as fabricators attempt to bridge the current skills gap. There is no question: continuous improvement is the new normal for metal fabricators that want to thrive in today’s competitive market. And if you think you have no time for improvement, check out this article from thefabricator.com. As the article shows, you can—and need to—make time.
March 30, 2014 / continuous improvement, Cost Management, forecast, human capital, productivity, supplier relationships, value-added services
Steel has a rich history in America and around the globe. It has often been called both the backbone of manufacturing and the building block of society—and rightly so. We rely on steel in many industry sectors, including automotive, aerospace, infrastructure, and consumer durables. The health of our sector is critical to the economy, as well as the quality of life that many of us enjoy.
As a global company that services the industrial metal-cutting industry, we at LENOX Tools have a unique vantage point of what is happening within the larger metals market. We have watched some companies barely survive these last few years, and we have also seen leaders rise to the occasion. And while there is still a lot of uncertainty within the marketplace, we are confident that with the right tools, 2014 can be a year of opportunity for many of our customers.
According to the Steel Manufacturers Association, the short-term prospects for the steel industry are no more certain in 2014 than they were in 2011, 2012, or 2013. While 2012 was a good year for the industry, with significant increases in both crude steel production and consumption, 2013 wasn’t as good as everyone had hoped. According to the World Steel Association, U.S. steel production was down 2% in 2013 compared to 2012, and forecasts estimate that apparent consumption only grew a mere 0.7% in 2013 over 2012. (Final data has not been released.)
But there are some promising signs. The World Steel Association’s October outlook stated that steel demand is expected to increase by 3.0% in 2014, aided by the improving global economy and activities in the automotive, energy, and residential construction sectors. In addition, as reported by Modern Metals, both automotive sales and construction housing starts are expected to increase in 2014.
Even with these positive indicators, most metals companies remain cautiously optimistic about the near-term future. According to an annual survey of metal executives by American Metal Market, the majority of respondents expected business to improve, with only 8% stating they were less optimistic about business as they headed into 2014. However, three in four respondents said political events have heightened uncertainty, and only 30% of executives expected the economy to turn around this year.
As the industry continues to wait for a true economic comeback, we are seeing some major strategic shifts in the businesses that we service. Unfortunately, a few businesses just could not find a way to survive, but many others were able to adapt and found smarter ways to work. They became leaner, more productive, and made investments where they mattered. We have also seen the emergence of several industry trends, such as consolidation and an influx of new services and products, as companies attempt to remain profitable.
One trend that we hear a lot about is “on-shoring” or “near-shoring”—the process of moving a business operation from overseas back to the local country. China, of course, has been the common landing spot for outsourced manufacturing in recent history. However, with rising labor and energy costs, China’s cost advantage is disappearing. That, along with the difficulties in managing a business across the globe in countries with vastly different work and social cultures, is helping drive the “on-shoring” trend. This is great news for the U.S. metal-cutting industry, as we will help rebuild America one business at a time.
When the market does finally rebound, companies need to be ready. Based on our experience, we at LENOX Tools see the following best practices as critical action items for companies that want to be prepared for quick growth:
- Equip Employees. To succeed in today’s competitive market, industrial metal-cutting companies need to optimize all aspects of their operations, including their human capital. This is especially important as the industry deals with a major skills gap. As highlighted in the white paper, Accounting for Operator Inefficiencies in the Metals 2.0 Environment, operator training needs to be ongoing. This is especially important for companies that have multiple shifts and a diverse mix of talent. By instituting regular operator training, managers can level the shop floor talent and add consistency to production procedures. This also encourages a spirit of continuous improvement among experienced operators who often resist change.
- Build Partnerships. Perhaps one of the greatest benefits of an increasingly competitive market is that many suppliers are offering value-added services to differentiate themselves—a trend that is especially beneficial for smaller industrial metal-cutting companies. Support in areas such as preventative maintenance, troubleshooting, and even software tools can help improve productivity and, ultimately, save costs. By leveraging the knowledge and services of trusted suppliers, companies can turn vendor relationships into strategic partnerships that have a real impact on the bottom line.
- Invest in the Right Tools. Forward-thinking managers know that long-term success usually requires some investment, whether in time or capital. Now more than ever, companies need to weigh their cost expenditures against the benefits or detriments of dollar-allocating decisions. However, managers need to be sure they are not shortsighted by upfront costs and, instead, consider the long-term benefits of improved productivity. For example, many of our customers that deal with hard, difficult-to-cut metals have found that investing in carbide-tipped band saw blade is worth the up-front investment because it improves cost per cut. Shop-floor decisions and investments need to be strategic and should help achieve larger company goals.
Another Year of Improvement
The reality is that no one knows what 2014 will bring, which makes agility and strategy critical. In fact, uncertainty is perhaps the only thing that is certain in this market. However, there are two things the last few years have taught us: you can never be too prepared, and there is always room for improvement.
Industrial metal-cutting leaders know they cannot afford to rest on their laurels—not in 2014 or in the future. Continuous improvement is the only way to succeed in today’s market, and best-in-class managers are proactively encouraging change at all levels of their organization. We at LENOX Tools are ready for another year of improvement, and we look forward to helping equip our customers and their employees with the tools they need to make this year one of their best.
March 15, 2014 / benchmarking, Cost Management, human capital, KPIs, lean manufacturing, overall equipment effectiveness, productivity
Most companies that have adopted lean manufacturing strategies know the importance of measurement. When a metal-cutting operation can quantitatively assess their performance, it can start to make significant improvements and set realistic goals to stay competitive. It also allows them to benchmark themselves against other industrial metal-cutting organizations. However, metrics are only meaningful if they are tied to strategy. That’s where key performance indicators (KPIs) come into play.
KPIs are the measurements selected by a company to give an overall indication of the health of the business. KPIs are typically dominated by historical, financial measurements, but most experts agree that they are more valuable if they also include operational measurements. Unfortunately, this isn’t as easy as it sounds and takes careful consideration.
Case in point: Over the last several years, it has been popular for manufacturers to us overall equipment effectiveness (OEE) as a KPI. However, this blog post argues that OEE is not a KPI that should be measured at a company or plant level. In the blog, the author states five reasons why OEE is not a good KPI, including the fact that it is not comparable between different pieces of equipment and/or different locations. Instead, he suggests OEE should be used as a way to help identify and eliminate waste in front of a process, line, or equipment.
Although the “right” KPI will vary by organization, there are a few simple guidelines managers should follow to determine the most effective performance measurements for their metal-cutting operation. Below are a few strategies to consider:
- Plant-level KPIs should align with business objectives. According to this article from Control magazine, managers should begin by making sure plant-level KPIs line up with corporate goals. Is your company focused on growth, or is the goal to maintain existing customers? How does your KPI tie into those goals? As the manager quoted in the Control article states, a good KPI should consider the manufacturing side and business side of an operation.
- Keep the list short. If every KPI should help drive strategic intent, the list should be intentional and concise. As stated in this column from IndustryWeek, managers that measure too many things aren’t really measuring anything. While it is okay to add to your list of KPIs, as the IW author states, be sure to go back and edit the list to make sure each KPI works toward the overall company strategy. This helps maintain focus.
- Make it a team effort. KPIs must mean something to everyone in order to be effective. This means communication is critical. Key personnel and supervisors should understand what the KPIs are, why they are important, and how they are measured. Without explanation, team members can get frustrated, especially if goals aren’t being met. Managers can also take it one step further by defining employee goals in terms of organizational KPIs. According to this article from Mind Tools, this is the critical link between employee performance and organizational success. For more information on how to link KPIs with employee goals, you can read the full Mind Tools article here.
February 25, 2014 / Cost Management, preventative maintenance
In today’s competitive and unpredictable market, managers need to approach cost strategically. While several reports are forecasting a forging industry upswing in 2014, both in the U.S. and globally, many forges remain cautiously optimistic about the market and, as a result, are continuing to watch their costs.
According to the “2014 Business Outlook” from Forging Magazine about 41% of the forges the magazine polled said their capital spending totals will be “about the same” in 2014 as they were in 2013. Another 34.5% of forges indicated their spending total would increase in 2014, and 24% said that spending would decrease, according to the report. The annual business survey also revealed that most new investments would be financed without new debt, and about 12% of respondents said they were hoping to actually reduce their debt levels in 2014.
There are several ways today’s forges and other industrial metal-cutting companies are proactively approaching cost, whether that means cutting back on spending or improving efficiency. Below are a few best practices to consider:
- Proactive care of equipment. Machine downtime is expensive, both in terms of repair costs and reduced productivity. As described in the paper, Top 5 Operating Challenges for Forges That Cut and Process Metal, consistent general maintenance and preventative maintenance programs can help executives better manage costs. On a band saw, for example, low coolant levels can lead to premature and uneven wear of band wheels, which typically cost about $1,000 each. By instituting regular coolant checks as part of a preventative maintenance program or daily operator checks, managers can eliminate this unnecessary maintenance cost, as well as the time needed to replace the band wheel.
- Strategically consider repair over replacement. When downtime does occur, plant managers are often left with the decision to repair or replace equipment and parts. This article from Reliable Plant discusses the benefits of repair and, specifically, outsourced repair services. Another article from Plant Services magazine discusses a decision tool called equivalent annual cost (EAC) that can be applied to the repair-versus-replace question. According to the online magazine, “EAC allows engineers and operators charged with optimizing the left side of the balance sheet assets to speak a common language with managers, who tend to see the right side of the balance sheet liabilities and equity.” You can read more about the EAC tool here.
- Manage Inventory. In today’s “lean” culture, everyone knows that waste is a huge “no-no” and that many times, high inventory costs and abundant scrap can be a sign of root-cause operator quality issues and inefficiencies. That’s why many best-in-class industrial metal-cutting companies have started to adopt the “pick for clean” method in their operations, choosing to use remnants first and striving to keep scrap and inventory levels low. A column from Manufacturing.net also poses some important questions managers should be asking: “How much does it really cost to make your products quarter after quarter? How are you using your space and your facilities to best maximize productivity? How is too much inventory during slower seasons and lack of inventory at busier times weighing you down?” In the end, better inventory management often leads to better cost management.
January 25, 2014 / Cost Management, resource allocation
Strategic allocation of resources is critical in today’s competitive marketplace. As customers continue to demand tighter tolerances and faster turnaround, operations managers need to be tactical with their existing assets while also knowing when it is time to make some upgrades. The challenge, of course, is making the right call by investing in the areas of your operation that will bring the best return.
While there is always an element of risk to any strategic decision, the following are a few best practices today’s managers should consider as they allocate resources in their operations:
- Proper allocation requires measurement. One of the first steps in proper resource allocation is identifying where improvement is needed, and the only way to do that is to measure your processes. In other words, you need a baseline for comparison. As described in a recent white paper from LENOX Institute of Technology, this can be done with sophisticated software or manually. In a metal-cutting operation, for example, managers can use software to automatically track the number of square inches processed by each saw and each blade. This allows managers to easily track trends and quickly detect problem areas. The same procedure can be done manually with a stopwatch. Regardless of your method, the goal is to measure productivity. Once a baseline is established, managers can start to effectively evaluate equipment, tooling, and operators.
- Think beyond cost. The term “investment” doesn’t always refer to money. In the aforementioned scenario, tracking software will require financial investment, while manual measurement will require time and human capital. While at face value the financial investment of software may seem high, there are “costs” associated with the manual strategy as well. The goal is to think long-term while also being realistic about the capabilities of your workforce. As demonstrated in this article from Manufacturing.net, the choice to automate (or not) takes careful consideration. For example, if you take the plunge to automate, what type of training will your workforce need when the new system is installed? Successful managers look beyond the initial benefits and the price tag of an investment and weigh the long-term pros and cons as well.
- Consider all of your options. At the end of the day, budget constraints are a real issue. However, just because you can’t afford a specific piece of equipment or technology doesn’t mean there aren’t alternative solutions out there. Perhaps used machinery is an option. This article from Forge Magazine provides some great reasons to contemplate second-hand machinery, as well as ten critical factors to consider before making a purchasing decision. Managers also shouldn’t underestimate the benefits of investing in human capital. Upgrades in areas such as training and safety can provide huge gains in efficiency and quality. Like any strategic decision, resource allocation requires an open mind. In the spirit of continuous improvement, best-in-class managers need to explore all of the ways they can save their operation time and money.
December 10, 2013 / benchmarking, Cost Management, LIT
In an ideal world, a fabricator wouldn’t list cost management as a challenge. If production is running smoothly, maintenance is under control, operators are trained, and customers are satisfied, then costs should be relatively stable. However, at a time when the industry hasn’t fully rebounded and uncertainty about market conditions remain, cost is a concern for even the most efficient industrial metal-cutting operations.
The question, then, becomes: How can today’s fabricators better manage their costs? When many companies are already “running lean,” what other measures can they take to keep costs under control or, better yet, save money?
Unfortunately, there are no “one size fits all” answers when it comes to cost management, but the LENOX Institute of Technology (LIT) was able to find a few strategies currently being used by industry leaders. Below are some of the ways top performers are approaching cost:
- Weigh long-term benefits against short-term costs. Whether a hard cost or an opportunity cost, fabricators should weigh their cost expenditures against the benefits or detriments of dollar-allocating decisions. Managers need to make sure they are not shortsighted by upfront costs and, instead, consider the long-term benefits. For example, would investing in a new piece of equipment improve productivity? Would it increase quality? Will it help reduce maintenance costs? This was certainly the case for O’Neal Steel. The company, featured in a white paper from LIT, found that spending $40 more per band saw blade saved the company about $600 a week—a total of $30,000 in annual savings.
- Focus on improving the order-to-cash cycle. An industry study from the Fabricators & Manufacturers Association International (FMA) says top-performing fabricators are focused on increasing the order-to-cash-cycle. The study, covered here by thefabricator.com, says that best-in-class companies are scrutinizing and improving every process in the order-to-cash cycle, including sales, quoting, engineering, customer communication, part flow, packaging, and delivery. According to the article, this shortens the cycle, which improves a host of financial metrics. When employees are able to process more jobs in less time, sales per employee increases and costs per job decreases, all of which outpaces downward pricing pressure from customers and rises earnings before interest, taxes, depreciation, and amortization (EBITDA).
- Set cost-cutting targets using external benchmarks. If your company is focused on reducing costs, make sure you are not setting arbitrary goals. According to a survey from Bain & Company, the problem with many cost-cutting initiatives is that they are based on internal benchmarks that ignore market trends. According to the consultancy, successful companies develop cost-cutting goals after taking into account what their competitors are doing. For example, cutting costs by 10 percent means nothing if all of your competitors are using new technologies that reduce costs by 30 percent. Managers need to make sure their cost-cutting goals are both realistic and relevant.
All three of these methods suggest that successful cost management in today’s marketplace requires managers to look at cost from a high level before implementing any initiatives. In other words, gone are the days of “quick fixes.” By taking the time to approach cost strategically, fabricators can make improvements that have a long-term—and more importantly, sustainable—impact on the bottom line.