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 a consultant in productivity and profitability, CEO of Exegens® and the author of Manufacturing Cost Policy Deployment (MCPD) and Speed-Based Target Profit (SBTP) concepts. His major research areas include manufacturing policy deployment, manufacturing cost improvement and visible profitability of operational excellence by improving productivity. His recent research includes the impact of Industry 4.0 on planning and developing synchronous profitable operations and on information systems of cost and budget in order to substantially improve the operational unit costs.

He has been actively involved in various industrial consulting and training projects for more than 20 years, delivering training/ workshop programs in Productivity, Innovation, Business Transformation and Leadership for over 5,000 participants.

He has a Ph.D. in Industrial Engineering and a Ph.D. in Managerial Accounting. He has an MBA Degree and a BA Degree in Accounting and Computer Science and he is certified Public Accountant in Romania. He has published in various research journals and presented papers at numerous conferences and congresses regarding Productivity, Profitability and Industrial Engineering.

Dr. Alin Posteucă is the author of Manufacturing Cost Policy Deployment (MCPD) and Speed-Based Target Profit (SBTP) concepts, published in four books at Productivity Press – Routledge/ CRC, New York (USA).

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