Article | December 21, 2021
When it comes to developing a budget for the following financial year of your manufacturing business, many operations managers start with direct labor and material expenditures. But, what about manufacturing overhead costs?
Manufacturing overhead is any expense not directly tied to a factory's production. Therefore, the indirect costs in manufacturing overhead can also be called factory overhead or production overhead.
Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower-cost goods and services, and causes economic expansion that reduces unemployment and increases productivity and job creation.
– Larry Elder
So, this article focuses on some highly effective overhead cost reduction methods that would help you build a healthy budget for the following year.
Manufacturing Overhead Costs: What Is Included?
Everything or everyone within the factory that isn't actively producing items should be considered overhead.
The following are some of the variables that are considered overhead costs:
Depreciation of equipment and productionfacilities
Taxes, insurance, and utilities
Supervisors, maintenance, quality control, and other on-site personnel who aren't producing signs
Indirect supply from light bulbs to toilet paper is also included in the overhead cost.
Manufacturing Overhead Costs: What Is Excluded?
Everything or everyone within or outside the factory that is actively producing items should be excluded from the overhead costs.
Factory overhead does not include the following:
Employee costs for those making the goods daily
External administrative overhead, such as a satellite office or human resources
Costs associated with C-suite employees
Expenses associated with sales and marketing - include pay, travel, and advertising
How to Calculate Overhead Costs in Manufacturing
To know the manufacturing overhead requires calculating the manufacturing overhead rate. The formula to calculate the manufacturing overhead rate i.e. MOR is basic yet vital.
To begin, determine your overall manufacturing overhead expenses. Then, add up all the monthly indirect expenditures that keep manufacturing running smoothly.
Then you can calculate the Manufacturing Overhead Rate (MOR). This statistic shows you your monthly overhead costs as a percentage.
To find this value, divide Total Manufacturing Overhead Cost (TMOC) by Total Monthly Sales (TMS) and multiply it by 100. The final formula will be:
Assume your manufacturing overhead expensesare $50,000 and your monthly sales are $300,000. You get.167 when you divide $50,000 by $300,000. Then increase that by 100 to get your monthly overhead rate of 16.7%.
This means your monthly overhead expenditures will be 16.7% of your monthly income. Being able to forecast and develop better solutions to decrease production overhead.
Five Ways to Reduce Manufacturing Overhead Costs
A variety of strategies may be used by manufacturing organizations to reduce their overhead costs. Here is a summary of some of the most important methods for reducing your manufacturing overhead costs.
Value Stream Mapping – A Production Plant Process Layout
A value stream map depicts the entire manufacturing process of your plant. Everything from raw material purchase through client delivery is detailed here. The value stream map provides you with a complete picture of the profit-making process. This overhead cost-cuttingmethod is listed first for a reason because every effort to reduce manufacturing overhead costsstarts with a value stream map.
Lean manufacturingis also one of the techniques of eliminating unnecessary time, staff, and work that is not necessary for profit and has gained undue favor in the manufacturing process. You must first create a value stream map of the whole manufacturing process for this technique to work. Once the lean manufacturing precept is established, the following strategies for decreasingmanufacturing overhead expenses can be examined.
Do Not Forget Your Back Office Management
Before focusing on factory floor cost reduction techniques, remember that your back offices, where payment processing and customer contacts occur, may also be simplified and increase profitability. Fortunately, automation can achieve this profitability at a cheap cost.
Manufacturers increasingly use robotic process automation (RPA) to sell directly to customers rather than rely on complex supply networks. This automation eliminates costly human mistakes in data input and payment processing by automatically filling forms with consumer data. Moreover, the time saved from manual data input (and rectifying inevitable human errors) equates to decreased labor expenses and downtime.
Automating Your Manufacturing Plant
For a long time, manufacturers saw factory automation as a game-changer. As a result, several plant owners make radical changes in their operations using cutting-edge technologydespite knowing it realistically. Over-investing in technologies unfamiliar to present industrial personnel might be deemed a technology blunder. Investing in new technology that doesn't generate value or is too hard for current staff to use might be a mistake.
It's usually best to start small when implementing newtechnology in manufacturing. Using collaborative robots in production is one way to get started with automation. They are inexpensive, need little software and hardware, and may help employees with mundane, repeated chores that gobble up bandwidth. It is a low-cost entry point into automation that saves labor expenses and opens the door for further automation investments when opportunities are available.
Reuse Other Factory Equipment and Supplies
Check with other factories to see if they have any unused equipment or supplies that may be "redeployed" to your manufacturing plant. Redeployment would save you time and money by eliminating the need to look for and install new equipment while lowering your overhead costs.
Outsourcing a fully equipped factory, equipment, or even staff can also assist in lowering overhead costssince you will only pay for what you utilize. As such, it is a viable method to incorporate into your production process.
Employ an In-house Maintenance Expert
An in-house repair technician can service your equipment for routine inspections, preventive maintenance, and minor repairs. This hiring decision might save money on unforeseen repair expenses or work fees for an outside repair provider. Having someone on-site who can do emergency repairs may save you money if your equipment breaks after business hours.
Manufacturing overhead costis an essential aspect of every manufacturing company's budget to consider. Smart manufacturingis intended to be productive, efficient, and cost-effective while effectively managing production expenditures. Calculating the manufacturing overheadcan provide you with a better understanding of your company's costs and how to minimize them. Depending on the conditions or geographical needs, each manufacturing plant's overhead expensesmay vary. As a result, identify your production overhead costsand concentrate on reducing and improving them.
What are manufacturing overheads?
Manufacturing overhead cost is a sum of all indirect expenses incurred during production. Manufacturing overhead expenses usually include depreciation of equipment, employee salaries, and power utilized to run the equipment.
What is a decent overhead percentage?
When a business is functioning successfully, an overhead ratio of less than 35 % is considered favorable.
How can I calculate the cost of manufacturing per unit?
The overall manufacturing cost per unit is determined by dividing the total production expenses by the total number of units produced for a particular time.
Article | December 8, 2021
The new manufacturing industry outlook for 2022 is what businesses desire. Due to COVID-19, the sector has seen several ups and downs in recent years. But the industry overcame the most difficult situation by adopting innovations as their working hands.
But all this upgrading and digitalization in manufacturing isn't for everyone. Some manufacturers may struggle with this change, while others may not. So, taking into account all industry segments, we have compiled a list of potential manufacturing challenges for 2022.
“Many companies simply are not willing to change or think they are done once they make a change. But the truth is that technology, consumer demands; the way we work, human needs and much more are constantly changing.”
– Michael Walton, Director, Industry Executive (Manufacturing) at Microsoft
The summary of manufacturing industry challenges and industry outlook for 2022 are presented in the stats below.
According to the National Association of Manufacturers (NAM), four million manufacturing jobs will likely be needed over the next decade, and 2.1 million will likely go unfulfilled unless we motivate more people to pursue modern manufacturing occupations.
According to PTC, 70% of companies have or are working on a digital transformation plan.
According to Adobe, 60% of marketers feel technology has increased competitiveness.
The statistics show that while digitalization facilitates the process, it also poses several challenges that must be addressed in the coming years. Let's explore what obstacles manufacturers may face in 2022.
The Manufacturing Industry Challenges in 2022
The manufacturing business has had a difficult few years as a result of the current economic downturn, and 2022 may not be even that smooth. Thought, technology, and current trends make the operations of upscale manufacturers easier, but not everyone is on the same page.
Let's look at some of the manufacturing challenges that businesses will face in the next year.
Skilled Labor Shortage
The manufacturing industry is facing a workforce shortfall as a skilled generation prepares to retire. Industry experts say that by 2025, there will be between 2 and 3.5 million unfilled manufacturing jobs. As a result of the advancement of new technologies, manufacturing organisations are finding themselves with fewer personnel. They do, however, require individuals with a diverse range of abilities, such as mathematicians and analytic thinkers, to accomplish the tasks with precision.
Specific manufacturing tasks have been automated to save time and money. Industry has adopted machine sensors to capture large amounts of data. With this kind of innovation, the industry's job structure is changing and the desire to hire an untrained or trainable workforce is slowly fading in the industry. However, using augmented reality and virtual reality, manufacturers can easily train personnel for the job and save money.
Lack of Ability to Mine Data
Manufacturing is progressively using IoT. The majority of businesses have already installed or are planning to install Internet of Things machines. These smart machines let businesses collect data to improve production and conduct predictive maintenance. But getting data is a simple task. The difficult aspect is analyzing and aggregating data.
Despite possessing the machines, most companies lack the systems to analyze and retrieve the data recorded by the systems. In this way, the industries are missing a vital opportunity. The industry must improve data mining capabilities to make better decisions in real-time.
Using IoT for analytics and predictive maintenance is critical. Monitoring technologies can help the sector examine data quickly. It can also help predict an asset's maintenance period. As a result, the industry will move from replacement to predict and fix.
Self-service Web Portals That Is Extremely Detailed and Precise
Manufacturing businesses usually strive for on-time order delivery and optimum revenue. However, consumer self-service, which has been in the industry for a long time, has never proven to be a simple walk for clients. Clients are frequently required to pick up the phone and contact manufacturers in order to track their orders and receive delivery estimates. This is hardly the service one would expect from a manufacturer, even more so in today's digital era.
The term customers in manufacturing include partners, end-users, and subcontractors. These three clients have distinct requirements and concerns about collaborating with the manufacturer. Companies can better serve their customers if their partner and end-customer portals are linked to a central hub which we can mention as self-service web portals.
All of the information and updates they need about their orders will be available to them through this new system. They can track, accept and amend their tasks. They'll also use the self–service portal to contact the manufacturer.
In this way, manufacturers can better serve their customers. A system like this will ensure that all parties have access to timely information in a digital format.
Meeting the Deadline for the Project
Product launch timelines are extremely demanding, tight, and stringent. Every project in the assembly line is about cost, time, and quality. Ultimately, these projects are rigorous and well-controlled. Manufacturers who fail to meet deadlines risk losing millions in potential revenues and sales.
Due to rigidity and stringent control, companies are less able to change project scopes or make adjustments as projects develop. The majority of initiatives begin with a design commitment. As new facts or change criteria emerge, adjustment flexibility decreases. This can be aggravating for a team that expects high-quality results. Deadlines are always a constraint.
Effective Business Digital Marketing Strategy
An industry's key digital transformation challenges are driving leads, sales, and MRR through digital channels. Many manufacturing organizations struggle to efficiently use marketing channels like paid media, enterprise SEO, local SEO, content strategy, and social media. In our opinion, one of the most significant issues these organizations have is their digital experience, website design, and overall brand presentation. They can't ignore them if they want to keep enjoying the manufacturing revival.
Visibility of the Supply Chain
Manufacturers must respond to the growing demand from customers for greater transparency. In order to meet customer demand across the customer experience and product lifecycle, they must first understand that precise and real-time visibility throughout the supply chain is essential.
All details must be taken into consideration by the manufacturers. They must be aware of any delays in the arrival of products on the market. Keeping abreast of such developments would give them a leg up in terms of adjusting or rectifying the situation.
Manufacturing industry challenges have long been a part of the industry. However, industry leaders and professionals have always confronted and overcome any challenges that have come their way. The year 2022 will also be a year of achievements, setting new records, and growth for the manufacturing industry, since it will be a year in which it will develop solutions to all of the aforementioned challenges.
What is the future of manufacturing?
Manufacturers should start using AI, block chains, and robotics today. The combination of these new technologies will reshape manufacturing. A new workforce capable of augmenting these technologies is developing and will become the future of manufacturing.
How will automation affect manufacturing in 2022?
When applied properly, automation can greatly assist manufacturing. These benefits include shorter production times, faster and more efficient work than human labor, and lower production costs.
How is the manufacturing industry’s market likely to upsurge in the future?
According to BCC Research, the global manufacturing and process control market is expected to grow at a CAGR of 6.3 percent from $86.7 billion in 2020 to $117.7 billion in 2025.
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Article | December 2, 2021
The world of manufacturing is continuously evolving in the 21st century, and companies have to combat competition, altering consumer demands, and unexpected events to be able to deliver in today’s experience. Global connectivity, innovation, and disruption are all reshaping the manufacturing industry, but a world-class business platform can help companies transform operations digitally to keep up with an evermore digitized world. The factory of the future will allow manufacturers to enhance production through the convergence of information technology with factory operations, combining the effectiveness of the virtual world with the materiality of the physical world to lower costs, increase flexibility, and better meet customer expectations.
The factory of the future functions on four dimensions: resource planning, manufacturing planning, planning and optimization, and manufacturing operations. Resource planning involves defining and simpulating the plant layout, flow, assets, and resources needed to efficiently develop products in a safe environment. Normal production change requests can be quickly validated by using 3D virtual experience twin technology. This technology could also quickly pivot operations to alternative products in the case of disruptive events. Manufacturing planning enriches the resource and product definition by defining and validating a process plan and creating work instructions that meet production goals.
Digital visualization of resource and process changes can also help speed up time-to-production in any scenario no matter the location by leveraging the cloud. Planning and optimization of supply chains across planning horizons will help manufacturers gain visibility with planning and scheduling by having the ability to model, simulate, and optimize alternative supply and production plans to reduce disruptions. Lastly, manufacturing operations management can transform global production operations to attain and maintain operational excellence. Manufacturers can create, manage, and govern operational processes on a global scale while maintaining operational integrity to meet altering demands.
For the factory of the future to come about successfully, there needs to be connected technology and shared data. Technology has to be adaptable with robotics and equipment that can be reconstructed to house changes and new products. An AI-powered product demand simulation is necessary to maintain agility and boost productivity. A versatile, cross-functional workforce with the ability to explicate data and function well in AR environments is also required along with smart factory technology such as wearable sensors and virtual prototypes. Through all this, the factory of the future can connect technologies across the product life cycle while optimizing the workforce and increasing sustainability.
Although achieving the factory of the future has several benefits, creating a feasible factory of the future plan can be challenging. In 2018, only 12% of companies had a mature factory of the future plan. One of the main challenges that companies face is a lack of internal skills to devise digital solutions. However, this can be combated by carefully considering how you can utilize digital technologies to deliver improved performance, resiliency, and flexibility. It is easier to begin with small steps and to collaborate with a partner who could support your efforts to build toward your desired transformation goal. It is important to always be prepared by evaluating your next steps, industry trends, and progress metrics. It is also crucial to focus on the people, process, and technology you’re using to have a successful transformation journey.
Manufacturing with the factory of the future can provide savings in a wide range of categories. For example, it can reduce virtual vehicles build time by 80%, increase on-time performance of industrial equipment by 45%, and reduce modular construction time of construction, cities, and territories by 70%. Leading the transformation of the manufacturing space towards the direction of the factory of the future will allow manufacturers to work smart and better meet the needs of the end consumers.
Article | October 8, 2021
The trends in the manufacturing industry for 2022 are expanding and altering the industry's conventional face. The future of manufacturing is going to merge with digitalization and technological applications. As a result, all operation methods, products, and manufacturing outcomes will be modernized with new technology applications.
To brighten the future of manufacturing, manufacturing companies must examine new trends in the industry before developing their manufacturing plans for 2022. Technological advancements are the next game-changer in the manufacturing business.
Adeaca's Vice President of Market Innovation and Project Business Evangelist had recently quoted in an interview with Media7 as,
“As technology takes over and enhances many of the processes we used to handle with manual labor, we are freed up to use our minds creatively, which leads to bigger and better leaps in innovation and productivity.” – Matt Mong, VP Market Innovation and Project Business Evangelist at Adeaca
The new trends in manufacturing are leveling up every part and element of the industry. In this article, we'll look at a new trend for each industry aspect that's assisting manufacturers in speeding up the production process, increasing ROI, and propelling their manufacturing business to new heights.
Additionally, it will assist you in addressing current industry challenges such as forecasting product demand, addressing skilled manpower shortages, and increasing manufacturing plant efficiency.
Five Manufacturing Industry Trends to Watch in 2022
Emerging trends in manufacturing provide a chance to review your production strategy for products and processes. Check out below the upcoming trends in manufacturing that are getting attention in the industry.
Customer Engagement and Purchase Experience
Creating an exceptional digital customer experience is a new trend in manufacturing. According to industry experts, mapping the customer journey and their interactions with your products is the first step towards establishing a positive connection with your potential consumers.
A few of the most popular strategies to improve the consumer purchasing experience and engagement are as follows:
Build a knowledge base for your products on your business website
Create a comprehensive FAQs page that addresses all of the buyer's possible queries
Create a chatbot to provide immediate help to the buyer with further inquiries
Create a brand story and a comprehensive description of your manufacturing business
If possible, provide product statistics and success stories, and content about consumer satisfaction with your product
Create a product functionality video or explanatory picture material to familiarize the potential customer with your product
These are some of the trends that engage your prospective buyers and increase their purchasing experience through a range of product-related information and educate them about you and your products.
Smart Technology-enabled Products
Smart is the new norm in every industry. The old operations and goods that were once a part of everyone's life have now been replaced by technology. Manufacturing is no exception to this alteration. Due to the increasing demand for smart products among customers, every company is now looking forward to inventing and manufacturing smart products.
Explore and understand how you may incorporate cutting-edge technology (Artificial Intelligence, Machine Learning, Edge Computing, and Digital Twins, and more) into your products to help them stay updated with manufacturing trends.
Virtual and Augmented Reality in Manufacturing (Industry 4.0)
Transforming traditional manufacturing systems and processes into smart, tech-savvy ones is a new trend in manufacturing. The future of manufacturing is expected to witness this digitization in 2022 and beyond. Therefore, you must convert your conventional manufacturing plants into smart ones, i.e., as per the concept of Industry 4.0 – the fourth industrial revolution.
Discover how prominent companies are implementing Industry 4.0
The following are some popular transformations that many popular manufacturing factories are adopting to become part of the industry revolution.
To achieve a zero-carbon footprint, manufacturers may use analytics systems to determine the amount of trash they create and develop ways to eliminate it. (Implemented by Whirlpool)
Utilize an analytics platform to decipher usage data for energy, water, and other utilities. (Implemented by Whirlpool)
Utilize technology such as Siemens' Mindsphere, which enables online analysis of several aspects of a production plant and helps manufacturers create digital models using real-time data. (Implemented by Siemens)
Utilize a combination of IoT and cloud-based technologies to avoid downtime and gather analytics data. (Implemented by Hirotec – a Japan based manufacturing company)
Machine learning technology can be used to foretell and avoid system failures in your manufacturing plant. (Implemented by Hirotec – a Japan based manufacturing company)
Utilize robotics and to accelerate manufacturing across many verticals. (Implemented by Ford)
Utilize 3D printing to improve the precision of product design and to avert product defects during the early production stage. (Implemented by Aerospace: Airbus) These are some examples that other well-known manufacturing companies in the market, such as Hewlett-Packard, Ford, Whirlpool, and Siemens are currently using. So, consult an expert and determine how to leverage emerging technology to turn your production plant into a smart manufacturing unit.
Internet of Things (IoT) to Boost Revenue
Manufacturing companies have begun to leverage the Internet of Things to establish connectivity between machines and operational procedures throughout manufacturing. This linkage between machine and operation significantly decreases the human supervision required for each step and completely automates them.
Manufacturers intend to incorporate these IoT trends in manufacturing into both their products and operational processes. IoT further enables manufacturers to operate and monitor their work remotely. As a result, they can concentrate on developing new strategies and preparing for future ventures.
Shifting Focus from B2B to B2C Model
Several manufacturers skip intermediaries and connect directly with their consumers to sell efficiently to their target consumer group. This purposeful approach has multiple benefits, which are outlined below.
Manufacturers may skip the lengthy retail sales cycle and achieve a shorter time to market
The absence of a third party between the manufacturer and the customer reduces the risk of brand misinterpretation or dilution
Direct interaction with customers enables manufacturers to obtain more accurate consumer data, product feedback, and requirements for new product development
Manufacturers can control the price of their products due to the absence of a third party between them and the target consumer group
These benefits of the B2C model attract manufacturers and encourage them to develop added production techniques with these benefits in mind.
Technology, innovation, and digitization are the future of manufacturing. The IoT trends in manufacturing are essential for industrial production and will allow the manufacturing industry to obtain a new competitive edge. Hence, manufacturers must keep in mind this industry revolution (industry 4.0 and 5.0) while developing strategies for their manufacturing operations in 2022.
What are the benefits of adopting the Internet of Things in manufacturing?
IoT devices can monitor industrial operations, manufacturing cycles, and other warehouse data management processes automatically. This benefit decreases the amount of time spent monitoring individual operations and increases production speed.
What role will smart manufacturing play in the future?
According to a grand view research analysis, the smart manufacturing market was worth USD 236.12 billion in 2020 and is expected to extend at a 12.4 percent compound annual growth rate to reach USD 589.98 billion by 2028.
What are the critical components of the smart factory of the future?
Robotics, the Internet of Things, big data, and cloud-based administration will be critical components of the future smart factory.