Four Steps to Maximize Your Manufacturing Gross Profit
In the manufacturing industry, it’s important to create a clearly defined plan to integrate, track, and analyze data from the operation. This plan can help you make the kind of operational decisions that maximize your gross margins, improve quality, and increase safety. Ultimately, these decisions will help you dramatically improve your business.
Contact Mindover Software online or at (512) 990-3994 to learn about your options for manufacturing ERP that leads to improving your bottom-line now and in the future.
Most companies only monitor manufacturing data from a high-level management perspective. Most organizations fail to dig deeper into the data to identify the actual costs surrounding product lines. Failure to identity true costs of manufacturing can prove detrimental to the bottom line.
Thankfully, there is an effective four step plan you can use to avoid this pitfall and instead maximize your gross margin.
- Identify KPIs
It’s very important at the start of your effort to collect manufacturing data that you identify the key performance indicators (KPIs) for each of your product lines. You need to examine the product and the manufacturing process to create accurate criteria to identify costs, verify quality, and ensure safety from start to finish.
Three recommended areas to focus on include:
- Overall Equipment Effectiveness (OEE): This metric combines several components to provide the overall effectiveness of your equipment or production line.
- Gross Margin (GM): Are the products made priced accurately? Have you accounted for direct and indirect costs? Are you examining the correct ratios for things like inventory versus production?
- Safety Incidents (MOD rate): How many health or safety incidents and near misses occurred on this process over a set period?
- Set Accurate Target Metrics
The only way you can accurately measure the performance of your manufacturing system or business strategy is by setting accurate target values for each KPI. These should be quantitative values that can be measured and compared to past performance.
It’s important to choose multiple performance metrics that provide you with a clear picture of whether the process is performing above or below target.
Some examples of targets you might choose would be things like machine speed, how many items made, or reported errors.
A good rule to follow is the SMART principle. That is, the targets you choose should be specific, measurable, achievable, realistic, and time-bound.
- Create a Visualization
Once you have your metrics and targets, it’s time to create a visualization or analysis tool, like a dashboard. You will use this tool to view and track the data you’ve decided to measure.
This is a critical part of improving manufacturing profitability, because the right tool can help you save money, better align your manufacturing strategy with your business goals, and improve your ability to meet those goals.
There are two types of dashboards you’ll want to use to measure performance. The first is an operational dashboard, which provides you a business perspective of operational targets. The second is an analytics dashboard which provides insight into future targets.
Use the problem you’re trying to solve to choose the right analytical tool.
- Implement Process Improvements
Once you’ve done an analysis and determined improvements that could add value to your gross margin, it’s time to implement those improvements.
From a business perspective, determine which improvements are more likely to provide the greatest Return On Investment (ROI). Implement those changes in your manufacturing environment. Then, measure and analyze KPIs to ensure that the changes resulted in improved metrics.
This should be a process of continual improvement in the manufacturing environment, with the most important metrics prioritized.
The goal of continual improvement is to maximize gross margins, improve quality, and enhance safety. Not only will this process ensure that you’re responding to market trends and focusing on the most important production challenges, but it’ll also result in a better bottom line for your business.
For more information on improving manufacturing profitability through data analytics, join Mindover Software consultant Lloyd Smith in a reporting and analysis webinar. Learn how to effectively analyze your manufacturing data to improve your overall gross margin.
Attend our webinar to learn more about how to use your data to improve manufacturing profitability through data analytics. Register now.