Cost Improvement Strategies for Mid-Size Auto Component Manufacturing

Role: plant head

Industry: mid size auto components manufacturing

Situation:

organization working on producing auto component based on customer design and requirements, as large scale. professional cum family culture with governance by family. currently face huge challenge to meet quality and cost requirements, product demand have various volume from 1 piece to 1 million. market is good but high competition very good technical know how, high man dependency world wide customer locations supply

Question to Marcus:

“

want to make cost improvement plan for operation and raw material

Cost Reduction

Target cost reduction with a structured, time-bound program that separates recurring operational savings from one-off cost-takeouts. Start with a rapid diagnostic: map cost pools (labor, materials, overhead, logistics) and identify the top 20% of SKUs and customers that drive 80% of volume and cost.

For operations, focus on labor productivity (OEE, takt, throughput per operator), reduce changeover and scrap, and formalize standard work. For raw material, cut SKU complexity, consolidate material specifications, and re-negotiate based on total spend, not price per part. Create a two-track roadmap: quick wins (30–90 days) such as scrap reduction, overtime control, carry-forward supplier rebates; and structural changes (3–12 months) like consolidation of suppliers, redesign for manufacturability, and automation of high-cost, high-variation processes. Require each initiative to have an owner, baseline, target, and realization plan (monthly P&L impact). Use simple KPIs tied to cost savings realization (cash savings vs theoretical savings). Allocate a small central fund to de-risk redesigns or tooling that enable step-change savings, and ensure savings are realized in the budget (not one-off). Prioritize actions that improve quality simultaneously, since reducing Cost of Poor Quality compounds savings and protects customer relationships.

Strategic Sourcing

Shift procurement from transactional buying to strategic sourcing with category plans and supplier segmentation. Segment spend into critical, leverage, bottleneck, and non-critical categories; for critical and leverage categories (likely alloys, specialty steels, heat-treatment, precision machining tooling), run competitive RFQs, demand aggregation across product families, and multi-year contracts with indexed price mechanisms and volume tiers.

For low-volume or single-piece items, negotiate long-tail clauses: engineering-to-order pricing, minimum order commitments, or time-and-materials for prototypes. Implement total-cost-of-ownership (TCO) thinking: include inbound freight, duties, inspection costs, quality failure costs, and inventory carrying in comparisons—not just unit price. Build supplier scorecards (quality, on-time delivery, cost improvement pipeline, responsiveness) and run quarterly business reviews with top suppliers that supply >80% of critical raw material spend. Explore nearshoring where logistics/duty savings plus lead-time flexibility offset marginal purchase-price increases. For global customers, propose supplier pooling and regional supply hubs to reduce cross-border complexity. Finally, create supplier improvement plans that share savings (gainshare) for joint process improvement or co-funded tooling; this reduces resistance from family-run suppliers and aligns incentives.

Lean Manufacturing

Adopt a pragmatic Lean program focused on flow, waste elimination, and flexibility for variable lot sizes (1 to 1M). Start with value-stream mapping at product families to expose non-value-added steps, long lead times, and rework loops; then convert to mixed-model cells where feasible.

Prioritize small-batch production capability through takt-based lines, one-piece flow where possible, and kanban for repeat parts. Use Kaizen events to target the highest-cost pain points (setup times, scrap, rework, material handling) and lock improvements into standard work. Embed visual management and daily shop-floor problem-solving (Gemba walks, quick problem resolution boards) to reduce man-dependency and capture tribal knowledge. For very low-volume/high-mix jobs, implement cell-based machining and multi-skilled operators rather than dedicated lines to avoid idle capacity. Make Lean metrics visible: lead time, first-pass yield, inventory turns, OEE, and cost per part. Tie operator incentives to measurable improvements and training completion. Lean will reduce both operating and material costs via lower scrap, reduced WIP and inventory carrying, and higher throughput without proportional headcount increases.

Inventory Management

Rationalize inventory using SKU segmentation (ABC/XYZ) and align safety stock to demand predictability and lead time. For high-volume predictable parts, implement JIT/kanban with supplier replenishment cadence to minimize raw material tied-up cash; for unpredictable or engineering-change-prone parts, hold strategic buffer stock but limit range via strict review cadence.

Apply lot-sizing rules driven by total cost: trade-off ordering frequency, setup cost, and inventory carrying. Introduce inventory governance: monthly SKU rationalization reviews, discontinuation of obsolete parts, and a slow-mover program with supplier return or consignment options. Leverage vendor-managed inventory (VMI) and third-party logistics for global customers to reduce inbound lead-times and duties through consolidated shipments. Improve forecast accuracy by integrating sales, engineering change notices, and customer release schedules into a single demand plan (S&OP). Track and publish days-of-supply and inventory turns at product-family level; set stretch targets (e.g., +20% turns) with linking to working capital KPIs. Digitize basic inventory controls (barcoding, cycle counts) to reduce reconciliation time and shrinkage—these small fixes materially reduce working capital and expedite cash flow for raw material purchases.

Quick Changeover

Reduce setup and changeover times to enable profitable production of very small lots and frequent model changes. Implement SMED principles: separate external from internal setup operations, convert internal tasks to external where possible, and standardize tools and fixtures across product families.

Map current changeover steps with timed observations, then run focused rapid-improvement events to eliminate non-value activities and to document the new standard process. Introduce quick-lock fixtures, modular tooling, pre-staged material kits, and shadow boards so that line changeover becomes repeatable and less dependent on specialist technicians. Train multi-skilled crews to execute changeovers and rotate responsibilities to avoid single-person dependencies. Measure setup time per family and set incremental targets (e.g., 50% reduction in 6 months). Lower changeover times directly reduce batch sizes, allow heijunka (leveling), decrease inventory, and improve responsiveness to global customer orders—this impacts both operational cost (less overtime, fewer expedited shipments) and raw material carrying costs by enabling smaller, more frequent buys.

Supplier Relationship Management

Switch from adversarial purchasing to strategic partnership for top-spend suppliers. Identify a 10–15 supplier cohort representing the majority of critical raw-material spend and institute joint business plans that include quality targets, lead-time reduction, cost-down roadmaps, and contingency capacity.

Conduct supplier capability audits and co-develop improvement projects—provide technical support or co-invest in tooling improvements that reduce per-part cost. Use structured SRM processes: quarterly business reviews, shared KPIs, and escalation mechanisms for quality or delivery issues. For suppliers in family-dominated cultures, assign dedicated supplier managers who build trust and communicate long-term demand visibility; structure contracts with clear incentives (volume guarantees, on-time bonuses) and penalties for poor performance measured objectively. Consider dual-sourcing strategic items to reduce single-source risk while maintaining collaborative improvement with both vendors. Track supplier-driven savings and convert realized improvements into contractual price adjustments or gain-share arrangements to lock in benefits. SRM reduces volatility in raw material costs and improves service levels to support consistent manufacturing schedules.

Activity Based Costing

Implement Activity Based Costing (ABC) to understand true cost drivers across mixed volumes and complexity. For a mid-size, high-mix plant, standard unit cost averages hide the economics of low-volume, high-engineering jobs versus mass runs.

Map activities (setups, heat-treat cycles, secondary operations, inspection) and assign costs to product families based on resource consumption. Use ABC to price jobs accurately, identify loss-making SKUs, and prioritize which products justify internal production versus outsourcing or redesign. ABC will reveal where overhead absorption is excessive (e.g., long inspection times per small lot) and allow targeted initiatives: move inspection to inline SPC checks, batch inspection by family, or invest in automated gauging for repeat parts. Once ABC is live, use it in sourcing decisions, CAPEX justification, and customer negotiations (showing the cost-to-serve for rush or low-volume requests). Keep the ABC model lean—focus on top activities covering ~80% of cost—and refresh quarterly as process changes reduce cost rates.

Quality Management & Assurance

Strengthen quality systems to cut Cost of Poor Quality (COPQ) which inflates both operations and material costs. Implement robust APQP and PPAP discipline for every new customer design or change; require documented control plans, FMEAs, and measurement system analysis (Gage R&R) before production release.

Deploy Statistical Process Control (SPC) on critical features, automate data capture where possible to reduce inspection labor, and escalate trends early to containment and permanent corrective action. Reduce scrap and rework by introducing poka-yoke for error-prone steps and 100% inspection only where absolutely necessary—focus on process capability (Cp/Cpk) improvements. For high-mix/low-volume orders, use master samples and standardized inspection checklists to eliminate repeat disputes. Track COPQ components (internal scrap, rework, returns, warranty) and set reduction targets with month-over-month accountability. Strong quality reduces raw-material waste, claims, and expedited shipments, directly improving margins and customer trust—critical for a global customer base.

Standard Work

Document and enforce Standard Work across critical operations to reduce variability, skill dependency, and hidden costs. Convert tribal operator knowledge into simple visual procedures, checklists, and takt-aligned work sequences for setup, machining, assembly, and inspection.

Standard Work reduces variability that causes scrap, rework, and re-sequencing which in turn inflate material consumption and labor. Link standard work to training and cross-skilling so that multiple operators can perform critical tasks, reducing single-person dependency and production bottlenecks. Use standard work audits during Gemba walks and include adherence in daily KPI huddles. When change is needed (new customer spec, tooling tweak), update standard work through controlled change processes and retrain operators immediately. Standardization makes continuous improvement measurable: once a baseline is set, incremental gains in cycle time or quality are attributable and sustainable, thereby reducing both operating and material cost overruns.

Sales & Operations Planning

Synchronize sales, engineering, and production through a formal S&OP process to manage wide volume variability and global customer commitments. A monthly S&OP cadence should align demand forecasts, confirmed orders, capacity constraints, and supplier lead-times into a single, actionable plan that informs buying decisions and production scheduling.

Use scenario planning for large, low-probability orders (one-offs vs volume ramp) so material procurement is hedged (options, buy-in-small then scale) and capacity changes are staged. S&OP reduces expedite costs, emergency freight, and overtime by making demand visible earlier—improving material purchasing efficiency and enabling tactical supplier negotiations (e.g., rolling forecasts, call-off contracts). Integrate engineering change control and new product introductions into S&OP to prevent last-minute material spec changes that generate scrap. Measure S&OP maturity by forecast accuracy, bias, and backlog age; set targets to reduce forecast error in priority families and hold commercial and engineering teams accountable for deviations that trigger cost overruns.