Transport & Logistics

Insights: Driving the cost out of rail manufacturing

7 Jun 2013, by Informa Australia

By Gary Stewart, Managing Director, Lean Design Australia, Email: 

Firstly, let’s start at the end point.

Photo of Gary Stewart, Managing Director, Lean DesignCase study 1 – A $20m manufacturer reduced his P&L costs by 36% ($7m) and then spent 15% ($3m) of that on Innovation, R&D, Marketing, and Sales, and grew his business by more than 50%. Previously each $1 increase in revenue at break-even contributed almost nothing to the bottom-line. Today, for each $1 increase in revenue – around 35 cents flows to the bottom line. Such is the power of opportunity today for driving costs out of your rail manufacturing.

Far too often manufacturers use “cost cutting” or “cost reduction” alone as survival tools – or as easy go-to profit improvement tools.  Neither will deliver survival in the long-term. In fact they usually end up costing more in the long-run as they do not address the root cause of cost, nor cost increases inside your business – nor aid in the growth and development of the business.

Wrong Thinking

  • “Cutting costs” in any form.
  • Squeezing cost out of the supply chain.
  • Seeing people and productivity as the problem.
  • Lean manufacturing is a survival strategy.

Correct thinking

  • Generate large-scale cost savings to spend on expanding and growing the business.
  • Design all of your business systems, production & office processes, and products, “right-first-time”.
  • It’s the capability of your people to operate the business correctly that will determine your success.
  • Design and develop the correct business systems and structures is the right survival activity.

But how can you reduce your total P&L costs by 35% ?

In order to dramatically drive the cost out of rail manufacturing we need to initiate a paradigm shift in thinking about both the way we run a company, and the way we design our company systems, processes and products.

Traditionally our system design and development methodologies have tended to follow established past practices ( we have always done it this way ) – or we introduce a program like lean manufacturing or six-sigma to make up for the inadequacies of our design and development programs.

However, lean manufacturing is actually a “do-it-right-the-second-time” strategy.

We allow ourselves to do a quite ordinary job on the design and development of our products and systems – and then give ourselves a big pat on the back when we take 10-15% of the resultant costs (right-second-time) out of the product or processes after we have spent all that time and effort to introduce them.

Rail Suppliers Forum Advert. Event held on the 3rd and 4th July in Melbourne.Using this thinking, we “engineer” in a lot of parts, steps and processes that actually add little value to the end outcome, and which only add complexity both to the product design & development process, and the production, manufacturing and serviceability processes – i.e. we add in a lot of unnecessary costs before later taking them out.

A paradigm shift in thinking.

By comparison true high-performance manufacturers instead focus only upon “right-first-time” thinking.

Case study 2 – A make-to-drawing manufacturer took the opportunity to reduce the complexity of his production processes by 81% during the introduction of a new product – thereby reducing the cost of manufacturing by an estimated 43%.

If we are to apply this new thinking across both equipment and infrastructure supply chains in rail then typically cost reductions from 20% to 60% can quite easily be achieved.

The key point is not the process – but the change in thinking that our CEO’s must introduce, and our systems and product designers must use.  It is this change of thinking that leads to a change in activity.

Changing the thinking of our people to “right-first-time”, and then developing the needed capability in our people to deliver that, is the key to driving cost out of rail manufacturing.

garystewart@leandesign.com.au

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