Avoid Production Management Mistakes

Metal production companies are struggling to survive like never before. Is yours?
By the end of 2008, manufacturing activity sank to its lowest levels in 28 years. That year, the bankruptcy rate for manufacturers was the second highest in the country. The profit margins for the second and third quarters of that year revealed truly horrific conditions: 56% decreased, 29% remained flat, and a full 85% saw no profit at all! Inventory turnover was down due to an increasing number of unfilled orders, costing the manufacturing industry over $65 billion. Dead inventory costs are on the rise, directly affecting the bottom line. 
2009 was merely a continuation of the painful slide downward. From January 2009 through July 2009, profit margins continued down this dismal path. After 18 consecutive months of losses, in August 2009, the metal stamping industry saw some signs of relief as the manufacturing sector expanded and profits were reported. But the bad news has a trickle-down effect that hits people right at home: from the beginning of the current recession, December 2007, until December 2009, over 5 million manufacturing workers were laid off. 
For many, the only option was to surrender to a merger or acquisition. One hundred and forty-one industrial manufacturing merger transactions were announced in 2008 — fifty of these involved U.S. targets and/or buyers. Then during the first three quarters of 2009, fifty-two more mergers were announced with sixteen more involving U.S. targets and/or buyers.

What can a manufacturing business to do survive and even profit in today’s market?
The news is truly discouraging. And yet, in the past two years, 15% of companies did report a profit. What sets them apart and helps them actually thrive during such troubled times? Today’s market is changing quickly, both from stressors within the American market and in the global economy. Staying current on industry research and trends is vitally important to businesses trying to stay relevant. This also true for your links in the supply chain above: use metal manufacturing suppliers who stay current on the changing times and find ways to empower companies to survive in difficult times.

Unique Tool & Manufacturing recently commissioned their own independent study, in order to better understand their customer’s challenges. The research study revealed trends that can either make or break a company’s chance of succeeding in the global 
manufacturing market.

3 mistakes to avoid: 
  • Inadequate dual sourcing: To dual source means to use two preferred suppliers to provide the same product or service. This means less risk due to having a qualified supplier up and running — waiting in the wings — if the other fails to perform. What could happen if you or your supplier has only ONE source?
  • Choosing a poorly performing supplier: Lean manufacturing or lean production involves never-ending efforts to reduce or eliminate waste — or any activity that consumes resources without adding value. Essentially, it means doing more with less. Failure to implement lean manufacturing — or lean production — can lead to: missed order dates, high product cost relative to the competition, and declining market share due to delivery time and/or cost problems. Using a supplier who is not practicing lean production can limit capacity and cause a high degree of supply chain disruptions.  
  • Sacrificing quality for the lowest bid: Do you think taking an International Bid is the cheapest option? Consider: Financing & Fees, Duties/Tariffs, warehousing, lift and storage fees at port of entry, On-Carriage costs (transportation in buyer's country), and the opportunity cost of money that is committed for 3-6 months as compared to 1-2 months. The price tag doesn’t always reveal the hidden expenses that come along for the ride. There are also other problems to also consider: What good is any reduction in commodity costs if transportation and logistics costs are high? How will currency fluctuations impact total cost? How effective are call centers if language barriers impact buyer/supplier communication? What about returns?
Sometimes, you get what you pay for. 
Remember: the cheapest solution is not always the least expensive in the long run! “Going cheap” can have tragic consequences. In Texas, Wylie Independent School District considered several companies that submitted bids for light poles at Pirate Stadium, which opened in 2003. District trustees approved the lowest offer. Now, at least 80 defective poles have been removed at this job and others from the same supplier because of serious cracks. Thirteen stadium light poles have fallen in recent years. Two poles fell in early April at a school near Denton, Texas. An 80-foot pole crashed onto an empty high school football field during a storm in Uniontown, Pennsylvania. The risks of accepting the lowest bid can be unthinkable. And keep in mind: these are local examples… what might be the ramifications of seemingly inexpensive international sourcing?

It doesn’t have to be that way. Avoid making these mistakes and running your business in a short-sighted, cheap manner. Think about way to implement lean production practices, carefully consider the true cost of the materials you are using, and always have a back up supplier waiting. For more information or to speak with someone who can help empower your business in today’s manufacturing market, call 1-734-850-1050 or send us a message using the contact form below.
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