Forget the noise about China. Manufacturing is still a crucial heart valve of the U.S. economy, pumping over $2 trillion dollars into the economy to comprise over 11% of the U.S. GDP.
With so many livelihoods dependent on manufacturing, a lot is riding on the notion that U.S. companies engaged in manufacturing actually get it right.
That said, manufacturing is a complex business, one that is very easy to get wrong. Not knowing where the pitfalls are can cause a company to learn tough lessons the hard way—hard enough to knock them out of the business, even. When it comes to turning raw materials into finished products, there are few second chances.
Here are five manufacturing mistakes, and how to avoid them.
The basic math of the manufacturing business requires that the sales price of the finished product be equal to or greater than the cost sunk into the production of that product. That means that a manufacturer must account for every cost that went into the production of each unit, usually determined by the entire production cost divided by the number of units.
Keeping your eye on the costs, however, does not make every cost a “key performance indicator” (KPI). Watching every cost like a hawk will not necessarily reveal chances to defer those costs.
If you have no control over the cost of your fuel, for example, there is a cost to even tracking that cost—one that you can’t really change unless you are confident you can identify ways to be more fuel-efficient. If you are already operating at peak fuel efficiency, tracking fuel cost as a KPI is just a distraction from actual KPIs that could lead to cost-saving business decisions.
How to Avoid This: Interrogate your KPI list. Ask yourself if you can really do anything about each one of them. Note the cost, by all means, but winnow down the list of variables you watch like a hawk, until your brain power is laser-focused on KPIs you can actually make big plays with.
Bad Employee Retention
Employee turnover is one of the heftiest cash-drains a company faces. Replacing one employee typically sets a company back in the neighborhood of at least 50% of the salary for entry-level employees, closer to 125%-200% for middle or upper management.
In the manufacturing space, that cost is even higher, considering that most manufacturing employees have specialised skills. Replacement employees don’t grow on trees. Manufacturing companies who ignore employee retention do so at great cost.
How to Avoid This: The sooner a manufacturing enterprise invests in employee retention, the better. Few dollar sums aren’t worth it. Compensation packages are a factor—the more attractive, the better. A big part of employee retention, however, is workplace culture. Employees are more likely to stay if they like the people they work with, feel like they are treated fairly, and have input in the destiny of their position.
Bad Environmental Monitoring
Manufacturing is very environmentally dependent. Turning raw materials into finished products often requires exacting temperature, pressure, and humidity conditions. Machinery may require close monitoring of voltage to prevent breakdowns, as well as strain and stress on machinery and materials.
Failing to track any one of these variables may result in diminished product quality—even unsellable products or costly production interruptions.
How to Avoid This: Craft a comprehensive plan for environmental monitoring throughout the manufacturing facility. According to Dickson, you should install permanent data loggers in key positions to track parameters like temperature, pressure, humidity, machine voltage, fuel flow pressure, tank temperature, stress and strain on components — in other words, anything critical to the successful manufacture of finished products. If it’s cost-effective, choose a data logger capable of alerting you to dangerous conditions to avoid product loss and unsafe conditions.
Bad inventory practices sink even the most sophisticated manufacturing operations. It’s just really hard to get inventory right. Some companies accumulate junkyards of obsolete inventory that gather dust because the owners can’t bear to write them off as a loss. They might have purchased speculative equipment for a business segment that never took off, or goods for resale that are now way past their prime and will never be liquidated for anything other than scrap.
Junk inventory is the manufacturing equivalent of a messy room—it’s hard to stay focused and get your act together amid all the clutter.
How to Avoid This: Be brutal and cull your inventory, adjusting and writing off where necessary. It is critical to be realistic here. The money is already spent, and some revenue—or even a writeoff—is better than no revenue. Clear out the old and make room for the new. The extra space and the closed loops can open the door for inventory that generates significant revenue.
Bad Web Presence
There’s no law that says manufacturers have to have a bad website and web presence, but you wouldn’t know it to search the web. Many manufacturers seem to think that the web game doesn’t apply to them—after all, they make stuff, actual things and not just internet fluff.
The problem is, ignoring the web revolution is just leaving money on the table. Qualified buyers search websites, look for value-added content, ask questions by email, and search on manufacturer databases like ThomasNet.com. The manufacturing companies that actively engage with the internet and create a strong presence through websites, blogs, product placement ads, client engagement, and so on, have a definite leg up.
How to Avoid This: Give your website a professional makeover. That means a pro web developer. Don’t just kick it over to the IT department. Get a professional. Make sure you can be found on networks like ThomasNet.com and WorldwideBrands.com. Make a habit of answering email inquiries quickly to cultivate the many qualified buyers searching for you online—just like any B2B enterprise.
Now more than ever, the U.S. depends on the manufacturing industry. Millions of jobs and a huge chunk of the GDP live in the manufacturing space. By avoiding these key mistakes, manufacturing enterprises do their part to carry this all-important segment of the economy—and make some great products in the process!