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This Is How You Can Lower Your Manufacturing Overhead

Bhagyashri Kambale | December 21, 2021 | 648 views
MANUFACTURING OVERHEAD COST
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 production facilities
  • 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:
  • Product materials
  • 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 expenses are $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-cutting method is listed first for a reason because every effort to reduce manufacturing overhead costs starts with a value stream map.

Lean manufacturing is 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 decreasing manufacturing 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 technology despite 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 new technology 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 costs since 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.


Final Words

Manufacturing overhead cost is an essential aspect of every manufacturing company's budget to consider. Smart manufacturing is intended to be productive, efficient, and cost-effective while effectively managing production expenditures. Calculating the manufacturing overhead can 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 expenses may vary. As a result, identify your production overhead costs and concentrate on reducing and improving them.  


FAQ


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.

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Epicor Acquires MES Provider eFlex Systems, Expanding Industry 4.0 Capabilities to Modernize Manufacturing Production Processes

Epicor | October 07, 2022

Epicor, a global leader of industry-specific enterprise software to promote business growth, today announced it has acquired eFlex Systems, a provider of cloud-based Manufacturing Execution System (MES) technologies. The acquisition expands the Epicor portfolio of Advanced MES capabilities to help manufacturers increase productivity by modernizing their production environments through digital work instructions, advanced process control, and real-time visibility. Financial terms were not disclosed. “I am thrilled to bring eFlex Systems into the Epicor family! Shop floors are a complex intersection of people, machines, robots, and materials, and it’s critical they work seamlessly together, People will continue to be at the heart of manufacturing, and our acquisition of eFlex Systems extends our ability to give Epicor customers the information they need to improve the user experience and unlock new levels of productivity.” -Steve Murphy, CEO Epicor. The eFlex Systems Manufacturing Integrated Platform (MIP®) enables manufacturers to manage and visualize global operations in real time, connecting devices, sensors, and machines with people to help operators build the right part, with the right tool, at the right setting in a safe and repeatable way. This helps manufacturers solve labor challenges by simplifying tasks and extending workers with connected devices which improves productivity. Epicor customers will be able to digitize processes through operator guidance, alerts, traceability, and data collection at the individual task level. Workstations can be configured and connected to their environments through open protocols and tools such as RFID, MQTT, and Node-RED, enabling operators to seamlessly leverage IoT devices such as DC tooling, barcode readers, weight scales, pick lights, PLCs, and others to complete the task at hand. “We’ve always been focused at eFlex Systems on helping customers reimagine manufacturing through sustainable, world-class production processes, By joining with Epicor, we’re furthering our mission to modernize manufacturing and bridge the data gap with cost-effective, easy-to-use solutions that drive efficiencies and throughput.” -Dan McKiernan CEO eFlex. About Epicor: Epicor Software Corporation equips hard-working businesses with enterprise solutions that keep the world turning. For nearly 50 years, Epicor customers in the automotive, building supply, distribution, manufacturing, and retail industries have trusted Epicor to help them do business better. Innovative Epicor solution sets are carefully curated to fit customer needs and built to respond flexibly to their fast-changing reality. With deep industry knowledge and experience, Epicor accelerates its customers’ ambitions, whether to grow and transform, or simply become more productive and effective.

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ADDITIVE MANUFACTURING

Amnovis Selects 3D Systems’ Dual Laser Direct Metal Printing Solution to Advance High-Reliability Applications

3D Systems | October 06, 2022

3D Systems (NYSE:DDD) announced that Amnovis, an additive manufacturing production and engineering company based in Aarschot, Belgium, has incorporated 3D Systems’ DMP Flex 350 Dual into its contract manufacturing workflow. This next-generation technology includes two lasers, which enables Amnovis to produce high-quality, highly reliable end-use parts for a variety of industrial and medical device applications. As a result of employing the DMP Flex 350 Dual solution, Amnovis is realizing enhanced productivity – at least 50% more as compared to the single laser DMP Flex 350 – and lower costs. Amnovis’ founders were among the first to employ laser powder bed fusion (LPBF) technology to additively manufacture Titanium medical devices such as orthopedic and spinal implants. Incorporating the DMP Flex 350 Dual printer into its manufacturing workflow is allowing Amnovis to expand its potential for stock and patient-specific medical device innovation. This unique innovation ecosystem is also enabling Amnovis to introduce product and process enhancements that can also be utilized for highly regulated industrial applications including aerospace and high tech. The DMP Flex 350 Dual is the most recent addition to 3D Systems’ Direct Metal Printing (DMP) portfolio. This dual-laser configuration maintains the benefits of the single-laser configuration including flexible application use and quick-swap build modules, and a central server to manage print jobs, materials, settings, and maintenance for 24/7 productivity. Additionally, the company’s unique vacuum chamber significantly reduces argon gas consumption while delivering best-in-class oxygen purity (<30 ppm). The printer also includes Oqton’s 3DXpert — the all-in-one software for industrial additive manufacturing that enables efficient preparation, optimization, and 3D printing of high-quality parts by streamlining the workflow from design to printing. The DMP Flex 350 Dual is designed to help accelerate innovation for a variety of applications including medical devices, aerospace, turbomachinery, semiconductors, and automotive & motorsports. “For us, innovation benefits from material and process enhancements, as well as the ability to increase productivity, We’ve experienced a tremendous leap in 3D printing efficiency by integrating 3D Systems’ DMP Flex 350 Dual into our workflow. By scaling our high-end parts manufacturing for quality-critical applications in medical, high tech, and other industries, we ensure faster delivery at lower cost, while maintaining our high-quality standards." -Ruben Wauthle, CEO and co-founder, Amnovis. In order for our service bureau customers to gain a competitive advantage, they need to differentiate the services they provide while becoming increasingly responsive to customer requirements, said Scott Anderson, vice president, segment leader, 3D Systems. Our collaboration with Amnovis is yet another example of how we can apply our application development expertise and a broad range of integrated additive manufacturing solutions to help maximize productivity, reliability, uptime, and yield. By integrating the DMP Flex 350 Dual into its solution portfolio, Amnovis is delivering high-quality parts to their customers while realizing exceptional total cost of ownership. About 3D Systems: More than 35 years ago, 3D Systems brought the innovation of 3D printing to the manufacturing industry. Today, as the leading additive manufacturing solutions partner, we bring innovation, performance, and reliability to every interaction - empowering our customers to create products and business models never before possible. Thanks to our unique offering of hardware, software, materials, and services, each application-specific solution is powered by the expertise of our application engineers who collaborate with customers to transform how they deliver their products and services. 3D Systems’ solutions address a variety of advanced applications in healthcare and industrial markets such as medical and dental, aerospace & defense, automotive, and durable goods. About Amnovis: Amnovis, based in Aarschot, Belgium, is a manufacturing and engineering company that uses innovative additive manufacturing (AM) technologies and materials for high-end applications such as medical devices. As an ISO 13485 certified contract manufacturer, Amnovis offers best-in-class AM technologies and expertise and paves the way for emerging AM technologies and materials. Digital process automation provides the traceability and repeatability to flexibly scale up manufacturing of products that comply with customer and regulatory requirements.

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MANUFACTURING TECHNOLOGY

CORE Industrial Partners Portfolio Company Cadrex Manufacturing Solutions Acquires EPMP

CADREX | October 07, 2022

CORE Industrial Partners (“CORE”), a manufacturing, industrial technology, and industrial services-focused private equity firm, announced today the acquisition of E.P.M.P., Ltd. (“EPMP” or the “Company”), a precision sheet metal fabrication services provider, by CORE portfolio company Cadrex Manufacturing Solutions (“Cadrex”). The Cadrex platform was formed in 2021 and includes ten business units with approximately 1.5 million square feet of manufacturing space and more than 2,000 employees across ten states as well as Mexico. Founded in 1984, EPMP provides high-volume sheet metal punching, forming, welding and assembly capabilities utilizing a variety of different metals, including aluminum, copper and brass, as well as carbon, galvanized and stainless steel. The Company serves a nationwide customer base in the renewable energy, HVAC, food & beverage, and industrials end markets, among others, through an equipment fleet that includes press brakes, turret punches, fiber lasers, combination laser & punch machines and automated fabrication cells. Headquartered outside San Antonio in Seguin, Texas, EPMP operates an ISO 9001-certified facility with over 50,000 square feet of manufacturing space. “EPMP’s significant historical investments in automation-driving material handling systems and robotics augment Cadrex’s high-volume sheet metal fabrication capabilities and make EPMP a highly strategic fit with the platform.” -Matthew Puglisi, Partner at CORE. Clint Plant, President of EPMP, said, For almost 40 years, EPMP has been committed to manufacturing and service excellence, demonstrating that commitment throughout all aspects of our organization. We recognize and appreciate this same customer-centric orientation at Cadrex and we’re looking forward to collaborating with Cadrex and CORE to continue our strong momentum. ABOUT CORE INDUSTRIAL PARTNERS: CORE Industrial Partners is a private equity firm with $700 million of capital commitments investing in North American lower middle-market manufacturing, industrial technology, and industrial services businesses. CORE’s team is comprised of highly experienced former CEOs and investment professionals with shared beliefs, deep experience, and a demonstrated track record of building market-leading businesses. Through our capital, insight, and operational expertise, CORE partners with management teams and strives to build best-in-class companies. ABOUT CADREX MANUFACTURING SOLUTIONS: Cadrex is a leading provider of complex production parts, assemblies, and weldments for a variety of end markets, including information communication technology, aerospace & defense, energy transmission & distribution, food production & agriculture, medical, material handling and electronic gaming & kiosk. With locations in nine states and Mexico, Cadrex offers comprehensive in-house manufacturing capabilities, including laser cutting, sheet metal fabrication, injection molding, electromechanical assembly, CNC punching, CNC machining, robotic welding, stamping, fastener insertion, and tool and die manufacturing, to effectively serve customers with lights-out manufacturing capabilities from low- through high-volume production. ABOUT EPMP: EPMP is a precision sheet metal fabrication services provider for a variety of end markets, including renewable energy, HVAC, food & beverage, and industrials. The Company offers high-volume sheet metal punching, forming, welding and assembly capabilities from an ISO 9001-certified facility outside San Antonio in Seguin, Texas.

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