why manufacturing is different from other sector?

1. Why MFG is different?
• Material to Sales Ratio is high, usually >50%
• (Material+Utilities) to Sales Ratio, >60%
• Operating Margin %, Net Profit % is low
• Employee Benefit Cost is low, <10% of Sales
• Asset Intensive, ROA is low

2. Industry Attractiveness
• Less attractive:
– Fierce Competition
– Dominant Customers
– Dominant Suppliers
• Results in very low margins as price of finished goods is
dictated by customers and cost of inputs i.e. price of
inputs is controlled by the suppliers and competitors
fight to retain or gain market share.

3. Cyclicality
• Industries such as Steel, Automobiles,
Commodity Chemicals exhibit high degree of
cyclicality (high amplitude or higher peaks and
lower troughs) compared to FMCG or Pharma
• Near the trough or during a recession,
demand falls drastically leading to a possibility
of operating near or below break even volume

4. Implications
• Focus on Cost Control:
– Reduce Unit Consumption or Improve Yield
– Reduce cost of Input (price from Suppliers)
– Reduce Inventories
– Reduce Transport/ Freight Cost
– Reduce Cash Cycle (time between payment to
suppliers for input and receipt of payment from
customers for finished goods)
– Minimize Total Cost in the Network (from RM
supplier to delivery to Customer)

5. Implications
• Increase Production
– Reduce cycle time / increase rate of production
– Reduce time to set up ( tool change time)
– Reduce unplanned maintenance time
– Reduce stock outs of inputs/tools
– Reduce Rework and Rejections
– Maximize Production

6. Implications
• Operate above the Breakeven volume
– Retain or Gain Market Share
– Develop new products/markets
– differentiation
– Improve Customer Satisfaction
• On time delivery
• Quality fit for use
• Prompt service
• Proper pricing (Value For Money perceived by customer)
Operate at Full Capacity

7. Possible Conflicts
• Low Inventory & High On Time Delivery
• Large Number of Set Up Changes i.e. lower
Production Time & High Production Volume
• Quality & High Production
• Lowest Cost & TCO (Total Cost of Ownership)

8. Likely Solution
• LEAN Manufacturing
– Respect to the operator
– Empower operator
– Teamwork
– Speak with Data
– Kaizen
– Single Piece Flow
– Pull System
– KANBAN
– FOCUS on Bottleneck operation
– Reduce time taken for a set up change, allowing frequent set up
changes
– Waste reduction

9. Desired Outcome
• Profitable Company
• Able to invest in the business
• New Technology
• New Systems
• Motivated Employees
• Customers & Suppliers as Partners
• All Stakeholders Working Together

10. Enablers
• IT Products & Services
– ERP
– SCM
– CRM
– SRM
– B.I. & Analytics
– DSS (Production Planning & Scheduling,….)
– Consultancy (BPR,….)
– Platforms (Cloud, Mobile,…..)