How Can We Improve Storage Costs Using MCPD?

By Dr. Alin Posteucă

Cost Reduction: 7 Basic Directions

Even if profit margins are decreasing for many companies, they find all sorts of excuses for their growing stock, especially for stocks that don’t move, move slowly or are not necessary for many days in the factory. Often, the value of these stocks is dizzying, especially for stocks of raw materials, components and spare parts, and the perception of this phenomenon is not as it would be an internal issue for the most part. Moreover, very expensive special orders are treated as normal. However, these companies must meet their annual and especially multiannual profit targets by putting pressure on other cost structures with incomparably lower weights.

Often, I ask top managers questions like:

  • Why is the reduction of storage an objective for your company? Why should the company have something to reduce? and
  • How well is Materials Lead Time (information, supplier production and transport) synchronized with Production Takt Time in your company?

Even if the theoretical elements regarding storage control seem quite well understood in these companies (such as: Takt Time/ or something similar, WIP planning according to the production mix, process balancing, bottleneck approach, control of production and delivery capabilities, etc.; even One Piece Flow and Continuous Flow) and even if these companies have fairly robust IT systems, the reality is that their unit costs tend to increase unjustified most of the time, and a relevant component of the unit cost structure is the cost with the storage, especially the costs with the storage proved to be unnecessary in time (brought too fast or too much).

Thus, in the Manufacturing Cost Policy Deployment (MCPD) transformation paradigm, to meet annual and multiannual Cost Improvement targets based on achieving Costs of Losses and Waste targets, the 7 most important directions for improving the Material Lead Time to meet CLW targets (especially critical costs of waste; having continuously transformed into costs all waste to carry out the most feasible improvements to reach the target profitability) can be listed as:

  1. optimizing the forecast of orders to suppliers and increasing the flexibility of the order for them;
  2. compliance of Materials Lead Time with Production Takt Time (by types of materials and types of suppliers);
  3. continuous search for alternative materials; especially in the design phase of future products;
  4. continuous search for alternative suppliers; especially in the design phase of future products;
  5. support for increasing the performance of all current and future suppliers;
  6. reduction of Material Lead Time (reduction of the number of operations, elimination of parallel operations, successive approach of bottleneck processes for the flow of information and transport – classification in production takt time; improvement of handling, continuous analysis for reduction and elimination supply delayed trucks, improving the time of unloading trucks and handling to the warehouse, increased production planning performance and implicitly reduced production plan changes etc.).
  7. optimization of stocks of raw materials, components and spare parts (full knowledge of supply flow constraints, definition and compliance with minimum and maximum levels, continuous reduction of minimum stock, knowledge of the actual storage structure at any time, continuous improvement of the system of tracking minimum stocks, for materials and/or components according to the production mix; for spare parts according to the maintenance plan, etc.).

In this context, taking into account that any improvement must be both effective and efficient, two questions arise:

  • What are the best ways to approach production planning control points to be effective in eliminating or reducing excess and/or too quick production?
  • Is the synchronization between the maximum takt time and the bottleneck process sufficient to ensure annual and multiannual target profitability and target ROI)?
Dr. Alin Posteucă is the founder and CEO of Exegens®, a global consulting firm specialized in cost competitiveness improvement and operational excellence. It helps customers create and implement profitable strategies and cost improvement programs that ensure a unit cost improvement of at least 6% per year for each of the next 5 years by maximizing the efficiency and effectiveness of operations.

He is the author of Manufacturing Cost Policy Deployment (MCPD) concept, published in three books at Productivity Press – Routledge/ CRC, New York (USA). The latest, ”Manufacturing Cost Policy Deployment (MCPD) Profitability Scenarios: Systematic and Systemic Improvement of Manufacturing Costs” (October 2018) is based on its main belief that the annual and multiannual target profit can be achieved irrespective of the sales volumes, increasing or decreasing. He is also the co-author of the book ”Manufacturing Cost Policy Deployment (MCPD) and Methods Design Concept (MDC): The Path to Competitiveness”, published at Productivity Press New York (USA), 2017, as well as the author of the book ”Manufacturing Cost Policy Deployment (MCPD) Transformation: Uncovering Hidden Reserves of Profitability”, published at Productivity Press din New York (USA), February 2018.

Alin Posteucă has more than 20 years of experience in Cost Improvement consulting and training. He has a PhD degree in Industrial Engineering and a PhD degree in Economics.

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