What is the Cost of Doing Nothing for Manufacturers in 2023?
Every day, we hear more news of inflation, the weaker pound, the energy crisis, the war in Ukraine, and the recession. These ‘black swan’ incidents, which describe events that come as a surprise and have a major effect, have put the manufacturing industry under huge pressure. Manufacturers feel stuck between rising input prices, and little or no opportunity to pass on these rising costs to retailers. On average, manufacturers have seen a 21% rise in their costs over the past year under the influence of energy prices, inflation, and other pressures.
There is clearly a high cost of doing nothing, even worse, there seems little sense of urgency. Why do manufacturers need to invest in improvement when many of them are fighting for survival in the current environment? The Food and Drink Federation indicated that the current pressures are stifling investment in factories. Nearly 50% of manufacturers have cut or paused their investment projects.
So why do manufacturers need to invest in improvement and what is the cost of doing nothing?
Doing nothing is costing more due to quality issues such as product recalls, rework, and batch rejections, and doing nothing suggests this is ‘as good as it gets’.
Many manufacturers don’t know their ‘Cost of Quality’, nor the root cause of problems. The cost of scrap, rework and product recalls get buried within the company overhead, especially when the quality issue is found or sorted internally. As Dr. Edwards Deming stated, ‘It costs just as much to make a defect as it does to make a quality product the first time.’ Some factories end up spending double the price on producing the same product due to ‘wrong first time’ and yet so many work on very small profit margins, leaving little margin for error.
A well-known pharmaceutical manufacturer dumped £250,000 of product to landfill as half the batch had been printed with incorrect date codes. With an average 21% rise in production costs, such an error today would cost an extra £52,500. The same error today therefore would cost them £302,500, plus the cost of landfill disposal.
The factory could have avoided the batch rejection and the consequential huge cost with a simple integrated or semi-automated solution that automatically sets up the date coders on product changeovers, at far less than the cost of this one event. As nothing was done to ‘fix’ the root cause of this problem, there is no reason to believe this will not recur.
In this factory and almost every other factory we visit, we can usually find similar examples.
Doing nothing also costs more due to overfill
It’s not just the quality issues that manufacturers need to do something about but also the filling process itself. Although the Weights and Measures (Packaged Goods) Regulations have been present for a few decades, it is still a massively underused piece of legislation. The unit manufacturing cost for many companies is still higher than it needs to be. Some say ‘As long as Trading Standards are happy and we have no complaints from supermarkets, the weights must be fine.’ – legal yes, but at what cost? Especially under the current pressures of energy, inflation, and recession, can you still afford to give away valuable assets through overfill?
A potato chip manufacturer in Demark overfilled materials to satisfy Average Quantity Law. When we showed the true cost of unnecessary overfill to the owner, his view was that in the grand scheme of things it isn’t worth bothering with, but, from our calculations, the overfill value per annum equated to two operators being paid for doing nothing. If that were the case, how long would it take before taking action? He suddenly saw the loss through ‘new eyes’.
What is more shocking is that the price of raw materials, (potatoes), has gone up 20% according to the Food & Drink Federation Prices Dashboard. With the rising cost of raw materials, electricity bills, and inflation, doing nothing could equate to the annual cost of 3 or even 4 operators being paid for doing no work.
The factory could have avoided the valuable overfill and the consequential cost by installing a weight control system that makes full use of the legislation. Harford Weight Control combines the benefits of Average Quantity Law with Statistical Process Control with Process Capability, ensuring that optimum control can be achieved, legally with fewer process adjustments.
Above are but a couple of examples where ‘doing nothing’ could prove to be the most costly ‘action’.
In fact, many manufacturers don’t realise the cost of doing nothing until a consultant from the outside points it out to them. ‘We have always done it in this way, and it works fine.’ – Does it really? ‘You don’t know what you don’t know’, and you cannot improve what you don’t measure. An outside look is necessary to help you see your own production process through new eyes and to see opportunities to reduce transformational costs and improve efficiencies.
The best time to take action to increase robustness and sustainability was pre-Covid. The second best time is now.
With insolvencies up by 42% on last year, reduction of wastage and increased productivity should be at the top of every manufacturer’s priorities. Firefighting and the love of the quick fix have to become part of manufacturers’ history, as they give way to root cause analysis, ‘fix once and forget’ and sustainability. Burying scrap and rework costs within the overhead keeps manufacturing costs high and threatens business sustainability.
Let us help you to start making those savings now.
We look forward to your call.
www.harfordcontrol.com or give us a call on +44 (0)1225 764461
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