The Manufacturing Process: A Practical Guide for SMEs
If you’re setting up a manufacturing operation – or want to improve your existing one – chances are you’ll be looking for ways to ensure it’s as time- and cost-efficient as possible.
Here we take you through important elements in the manufacturing process with best practice in mind – from product development through to production management, packaging and tracking. We’ll also look at tools you can use after production to reflect on and improve your processes.
Not all of these steps will apply to your business, but it’s a best practice guide you can pick and choose from to make your manufacturing business run as smoothly as possible.
Make manufacturing processes a key part of product development
Before we go on to manufacturing itself, let’s take a step back and look at how manufacturing fits into product development as a whole.
Product development is traditionally thought of as occurring prior to manufacture – but in reality it’s essential to consider how your product will be made during the development stage.
The product development process is usually presented as a series of steps, but it’s best that you integrate these steps so you’re considering how to manufacture your product as you design it. After all, there’s no point designing a product that can’t be produced at scale cost-effectively.
Steps of the product development process include:
- Product conception. Get an idea of what your product will look like.
- Research & product validation Expand your research: Does your product satisfy a need in the market?
- Design. Start the design process: What’s the product’s function, and what will it be made of? How will I manufacture my product?
- Prototyping & testing. Solve issues prior to manufacturing by testing a prototype on your target customers.
- Final design. Refine your design, possibly using more detailed computer modelling.
- Production design & costing. Ensure your product can be manufactured economically.
- Manufacturing & assembly. Schedule production, manufacture, assemble and package your product.
- Marketing & distribution. Have a go-to-market strategy so people get to know your product and why they should buy it.
Bills of materials (BOMs)
With the final design completed, you’ll turn to more detailed production planning.
At the core of this are accurate bills of materials (BOMs). Managing your BOMs is an essential part of your production planning – perhaps the most essential part.
A BOM is a recipe that gives a comprehensive list of the materials, components, assemblies and sub-assemblies that go into each of your finished products or assemblies. For each ‘ingredient’, the BOM records quantity, unit of measurement, part number & name, and any other relevant notes.
BOMs usually list ingredients hierarchically, with the finished product at the highest level and sub-assemblies arranged in tiers below. Components higher up in this hierarchy are often referred to as ‘parents’, and the sub-assemblies that go into them as their ‘children’.
Your BOMs will be structured according to the needs of each product: they can be single level for simple products, or multi-level for complex products with thousands of parts, like cars.
How can you optimise your bill of materials?
The key to a good bill of materials is including all the information needed for the production of your finished goods. You’ll also want to ensure it’s accurate, user-friendly and there’s a single version available to all stakeholders involved – and that you update your BOMs as soon as changes are made.
For this reason, it’s best to manage BOMs with software. When BOMs are part of your manufacturing inventory management software, you can easily track the components and raw materials you need for each production run, and ensure you have them on hand. You also gain a clear view over the cost of materials, making calculating profit margins simple.
Why are manufacturing bills of materials (MBOMs) so important?
The manufacturing bill of materials (MBOM) is a type of BOM that lists the components and operations needed to create a finished and shippable product – including equipment, consumables, packaging & instruction manuals, and assembly processes.
Keeping accurate, up-to-date MBOMs will give you greater control over your manufacturing operation – which will help you achieve greater cost and process efficiency. Other key benefits of MBOMs are that they help you:
- Source and assign materials optimally. Avoid errors like assigning inventory twice, ordering the wrong quantity, running out of materials, and producing excessive waste.
- Give staff access to information. Various departments can refer to the MBOM for up-to-date information – from engineering and shop-floor staff, to external contractors.
- Manage complex operations and multiple stakeholders. An MBOM can be particularly helpful when production includes complex sub-processes – e.g. when your products include several sub-assemblies and/or contractors are supplying components.
- Track and refine your operations. An MBOM tracks your operation from start to finish, helping you identify problems and make adjustments.
Production planning: What software do SMEs need?
You’ve got your product design and your BOMs – so how do you go about planning production?
Production planning is usually described as a series of steps:
- Start with a broad production plan
- Map your manufacturing process (‘routing’)
- Create a production schedule
- Produce a master schedule
- Manufacture your product (‘dispatching’ or ‘activating’)
- Monitor production and undertake quality control
To manage these steps, there’s a range of software available, including complex and costly Material Requirements Planning (MRP) and Enterprise Resource Planning (ERP) systems.
But for SMEs, MRP and ERP software usually include features beyond what is needed – and often beyond budget. By contrast, manufacturing inventory management software provides the functionality needed to efficiently manage a manufacturing business – and at a reasonable price.
Inventory management software generally includes a dedicated function for bills of materials – which lies at the core of your production planning. It provides a centralised system to keep track of raw materials and reserve inventory for production – and comes with purchasing, sales and supplier management.
So while it may not have the exhaustive features of MRP or ERP, it helps you avoid the common pitfalls small-to-medium manufacturers face – like stockouts, excess waste, and unplanned downtime.
We’ll talk more below about how it can also give you valuable business intelligence so you can track production KPIs and forecast more accurately.
The main manufacturing processes
We’ve now covered manufacturing planning, and can move on to the processes that are used in the factory to shape your raw materials into finished goods.
Depending on the type of product you’re making, you’ll typically use one or more of the following manufacturing processes:
- Casting (AKA moulding) is when a cast is used to create a shape – usually out of plastic or metal. This has several advantages: once your cast is ready, you can create complex shapes and designs with little downtime, and these can range from very small to several tonnes. Because the shapes you create are solid, it can mean fewer parts to assemble.
- Machining uses power tools to cut material and produce the desired shape. There are three main types of machining: milling, turning and drilling. Modern machining uses software to map toolpaths from computer aided design (CAD) files, and employs a variety of tools, including lasers. Machining can result in a high standard of finish on a variety of materials (e.g. wood and plastic), and lets you produce features like round holes. A downside is that machining accuracy can depend on an operator’s skill and labour costs can be high.
- Joining is when you fuse or join the parts of a product together. For example you can use bolts, nails, rivets, welding, adhesive bonding (e.g. glue) and fasteners.
- Shearing is using cutting blades to slice a workpiece – usually metal – in a straight line.
- Forming is when you apply stress to a workpiece – usually metal, but sometimes plastic – to bend, spin or stretch the material into the shape you want.
If you’re in another industry like food & beverage, you’ll use processes specific to this industry – such as blanching, blending, boiling, filtering, fermenting and more.
Should you contract out your manufacturing processes?
Whether you undertake your own production processes or outsource these will depend largely on your resources and budget for premises, equipment and staff. For many SMEs it makes sense to contract out some or all of the firm’s manufacturing processes, leaving the business to concentrate on simple assembly, along with sales and marketing.
For more on how contract manufacturing works, what contract manufacturing agreements should cover, and the pros and cons of contract manufacturing, you can explore the detailed article below.
Additive manufacturing: is it affordable for SMEs?
Additive manufacturing – AKA 3D printing or rapid prototyping – is another manufacturing process that lets you create new shapes in a variety of materials – including plastics, metals and alloys.
This method allows you to create new and intricate shapes without re-tooling, meaning it is suited to prototyping for new products – so it can be used during the design phase. Because it creates a solid shape, it can also reduce the number of parts needed for a product.
The downside of this manufacturing method is the cost of purchasing equipment and raw materials. It’s also slower and difficult to scale – meaning that it’s more suited to one-off or customised goods, rather than mass production.
But there may still be a place for 3D printing in your manufacturing process, since the technology is continually being developed and is becoming more cost-effective and accessible. And you may find that contracting out prototyping to a specialist additive manufacturer saves you time during the design phase.
The assembly line in the manufacturing process
You’ve got all your parts or components together – either by manufacturing these yourself or contracting their production out – so we can now move on to assembly.
What is assembly?
Assembly brings together components or partially completed units to create a finished product that your customer can buy. Assembly is often labour-intensive, time-consuming and costly, making it a critical part of the manufacturing process and your production planning to get right.
What is an assembly line?
If you’re producing a large quantity of goods, you’ll probably use some form of the assembly line. For many years, variations of the assembly line have been used in the automotive, electronics, food & beverage, clothing and consumer goods industries to cut costs and increase output.
The traditional assembly line breaks up the assembly process into a sequence of steps, and the product moves through a series of stations where parts are added. This assembly model divides up human labour, meaning that unskilled workers can perform a single specific task repeatedly, rather than a skilled employee carrying out the entire assembly.
Assembly vs production line
‘Assembly line’ and ‘production line’ are often confused, but strictly speaking, an assembly line is specific type of – or part of a – production line:
- Production line: A series of processes is used to create a finished and sellable product. Example: A food production line processes raw ingredients to produce packaged food.
- Assembly line: Parts and/or components are added in a series of steps to create an assembly. Example: A toy manufacturing assembly line adds parts together in eight steps so that the toy is complete.
Modern assembly lines
Assembly lines have been evolving since their first use in the 1800s, and your assembly system will depend on the capital you have available, operating regulations and the nature of your products.
Some common modern variations on the classic assembly line are:
- Semi-automated and automated assembly lines: Parts or the whole of the assembly line are automated to minimise human labour and error – and reduce costs. This has the added benefit that machines can often handle hazardous items – like chemicals – more easily than humans. The majority of modern assembly lines are automated in some way.
- Intermittent assembly lines: An assembly line is used, but staff and machines adapt their processes slightly for each product. This allows for customisation and variety within a single product type, while still being efficient. For instance, a furniture manufacturer produces couches to order that have different finishes, upholstery, and so on.
- Lean assembly lines: Products come together piece by piece as in a classic assembly line, but instead of workers completing one process at a time, they work in teams at a single station. Workers change tasks and split their workload in different ways, lessening the risk of boredom and repetitive motion disorders.
Companies continue to experiment to find technology and techniques to suit their business. Some examples of newer assembly processes are:
- Modular assembly: Modules are produced either in-house or by contractors, which are then joined together on a final assembly line. This is a complex system that requires sophisticated communication and scheduling. Currently some car manufacturers are developing modular systems that utilise AI and driverless vehicle technology.
- Cell manufacturing: A cell operator or group of operators uses automated machinery to do several tasks in the assembly process.
Product packaging: key trends
Your product is now assembled, but it’s still missing one key element before it can be sold: packaging.
Again, this is an element that should be considered during the design stage for your product. Your packaging is primarily functional, which means it must:
- Protect your product during transport
- Stack well
- Use space efficiently (keeping transport costs down)
- Minimise weight
- Communicate its contents to its end user
For manufacturers selling their product to consumers packaging is also one of the ways you brand your product, so it should appeal to your target market.
Research indicates that customers are inclined to favour more eco-friendly packaging, and there are now a range of types to choose from. These range from home compostable to recyclable and reusable packaging – from more traditional paper boxes to refillable stainless-steel jars.
Your product packaging will depend on the characteristics of your product, and how it’s distributed and consumed. It’s most common for companies to source packaging externally, and you’ll often have to decide between ready-made and custom options.
Batch and serial tracking in manufacturing
Your product is now complete, so what comes next?
Two key processes that you may want – or even need – to have in place after production are batch and serial tracking.
What is batch tracking, and why is it important?
Batch tracking – sometimes called lot tracking – is when you track products made in batches from their production right through to their distribution. This allows you to trace and monitor products that have been made under the same conditions and using the same components.
It’s especially important for businesses that manufacture perishables, cosmetics and electronics, where batch tracking is often mandatory: it means you can locate defective or about-to-expire products and recall them if needed.
For example, a manufacturer produces cell phones. A batch tracking number identifies where and when the batteries were produced for each batch. If there is a safety issue with any batch, the phones the batteries are in can quickly be identified and recalled.
Manufacturers targeting supermarket deals for their products should be aware that different supermarket chains may require batch tracking capabilities before they agree to stock certain items (e.g. food and beverage).
What’s the best way to carry out batch tracking?
The most efficient way to track your batches is to use inventory software with a built-in batch tracking function. By incorporating scannable barcodes, tracing batches will be even easier.
Your batch tracking system will include information like:
- The origin of raw materials and components
- Date, time and location of manufacturing processes
- An overview of where batches are located
- Best before or expiry dates
- Supplier and customer information, and receipting
The benefits of batch tracking
The benefits of using a batch-tracking system include:
- Regulatory compliance for industries like food manufacturing and pharmaceuticals that mandate strict product-tracing practices.
- Better management of expiry dates so you can easily locate stock about to expire. You can use a first-in-first-out method to ensure older stock is shipped first and offer discounts to move older stock faster. This minimises waste and saves costs.
- Quick response to recalls: Damaged or contaminated batches can be identified and a list of affected products made quickly and easily. Batch tracking can help you work out why goods are being returned – you might have a supplier whose goods are lower quality, for instance.
- Visibility over your operations: You can use filters to see where batches of your products are, and use data generated to ensure you have the right raw materials and components for seamless production.
What is serial number tracking?
Serial number tracking is when you assign each individual unit in a product line a number or code. You can then use this to trace products as they progress through the manufacturing and distribution phases. Serial numbers are more often used for high-value items, such as electronics.
How is serial number tracking different from batch tracking?
Serial number tracking – like batch tracking – is a way to trace manufactured goods so they can be located and recalled if there is a problem like contamination or defects.
The benefits of serial number tracking are largely the same as for batch tracking (as outlined above), but serial numbers have extra uses: they can be used for warranties and to identify stolen or counterfeit goods, since they are unique to each item. You’ll decide which of these tracking systems to use based on the type of goods you produce.
As with batch tracking, the best way to implement serial number tracking is using inventory management software. Usually with this sort of software it’s simply a matter of choosing which tracking system you want to use (batch or serial number) and inputting your tracking codes.
Work in Progress (WIP) Inventory
Once your products have been made, packaged and tracked, you might think about reflecting on your processes to improve your manufacturing efficiency.
One key tool to analyse efficiency is the value of Work in Progress (WIP) inventory, a measure that’s used in inventory accounting.
What is WIP inventory?
WIP inventory refers to any materials and parts that have been partially processed and are still on the factory floor. It’s one of the three types of inventory manufacturing businesses deal with – along with raw materials and finished goods.
WIP means some work has gone into processing raw materials, but others are needed to finish the product – so it covers everything after the raw inventory stage and before the finished goods stage.
WIP inventory represents the value of the goods that are still in production, including the cost of the raw materials, overheads and labour that go into them. Like the other forms of inventory that manufacturers deal with, WIP is an asset and appears on a business’ balance sheet.
WIP inventory: an example
Think about making tomato sauce. The raw materials for this include tomatoes, sugar and vinegar. Once these ingredients have been combined, they are now classed as WIP inventory, and will remain so until they undergo several more processes – like blending, jarring and labelling – to become a sellable product.
WIP inventory calculates the value of the tomato sauce still in production, taking into account the cost of operations to get the sauce to its current state.
Work in Progress (WIP) or Work in Process (WIP)?
‘Work in progress’ and ‘work in process’ are both abbreviated as WIP and both refer to partially completed goods. Often there is no distinction between these two terms, and either can be used in the manufacturing context.
When people do use these terms to mean two different things, here’s the distinction:
- Work in progress sometimes refers specifically to the cost of partially completed large projects that take a long time to complete – e.g. construction jobs. This is often used where jobs are billed after a certain percentage of the work is completed.
- Work in process is sometimes used for partially completed goods where materials are made into finished, sellable goods in a short timeframe – e.g. manufactured goods.
How is WIP value calculated and used?
Best practice is for businesses to calculate WIP at the end of accounting periods to monitor production costs and manufacturing processes.
To calculate the WIP value, you use a formula to get an approximation of the Ending WIP Inventory for a particular period:
In this formula the Beginning WIP Inventory is the Ending WIP Inventory for the previous period – so if your reporting is monthly, you would use the Ending WIP figure for last month.
A high WIP value suggests that there are hold-ups in the production process, and this means more capital tied up in stock that cannot be sold.
Where possible, businesses will often minimise or eliminate WIP inventory before the end of a reporting period to make their accounting easier.
Another measure of your manufacturing efficiency is Manufacturing waste, which is when resources are used but no value is added for the customer – a costly problem for manufacturers.
There are two broad categories of waste in manufacturing:
- Necessary waste can’t be avoided. For instance, when waste occurs for quality testing.
- Pure waste can be avoided. An example is when staff have to wait to use a machine
Pure waste can occur in activities across the manufacturing process and this type of waste doesn’t have to be physical – it can be wasted time and motion.
The lean manufacturing method identifies seven types of pure waste:
- Inventory: You hold excess stock for unexpected events – or you over-ordered because you didn’t forecast demand accurately. Inventory waste falls under five categories:
- Finished product
- Raw materials
- Stationery & office materials
- Maintenance, repair & operation (MRO)
- Transportation: Your goods are moved unnecessarily within your premises – or even between warehouses in different cities or countries.
- Motion: People and equipment move unnecessarily during production – e.g. multiple staff operate one machine when only one person is needed, or staff spend time looking for materials.
- Waiting: People or machines have to wait – a machine might be broken and needs fixing, or staff might be waiting for instructions.
- Overproduction: Too many products or components are produced, and not all of them can be used or sold.
- Overprocessing: Materials are overprocessed unnecessarily – like when part of a product is painted that is not seen in the final product.
- Defects: Raw materials or finished products are unusable and have to be thrown out. This is one of the costliest forms of manufacturing waste.
How to reduce manufacturing waste
There are measures you can take to cut down on wastage in all of these cases. You can:
- Use inventory management software. This helps you avoid holding excess stock or overproduction, and allows you to efficiently reorder stock. Accurate BOMs within inventory software also reduce waste of raw materials.
- Reconfigure your warehouse. Store best-selling goods close to the shipping area, and store goods often sold together close to each other. Make tools and materials easily accessible and your warehouse easy to move around.
- Train your staff. Provide clear documentation for workflows and standard operating procedures. Upskill staff so they can perform a variety of tasks. Your staff deal with operations on a day-to-day basis, so ask them for feedback on wastage.
- Maintain your equipment. Keep your machinery in good order to maximise its output.
- Institute quality control measures. Using good quality raw materials and having a robust quality control system means less chance of wastage due to defects.
- Use tools like a Yamazumi chart or undertake waste audits to review your processes. Identify where time is wasted and tasks are performed that aren’t valuable or necessary.
- 5 Causes of Inventory Waste That’s Costing Your Business and How to Avoid Them
- Understanding Manufacturing Productivity
Manufacturing reporting and Business Intelligence (BI)
Another way to improve production efficiency is using computer-generated data.
BI is a term used for the insights you can gain from analysing real-time data on your business activity. With these actionable insights, your business can respond quickly to new trends – from a surge in demand to price changes for raw materials.
The best way to generate accurate and timely BI is using computer software that transforms your data into easy-to-read graphs and tables. Cloud software that does this is now affordable for SMEs, with the added benefit that it will scale as your business does.
One key way to utilise BI is to set KPIs and use these alongside reporting. KPIs have the advantage that they are more specific measures of your business success than reporting, and easier to appraise at a glance.
To help manage your supply chain, profit margins and inventory, you might start with these key KPIs:
- Supplier lead times: Are suppliers providing goods in the timeframe promised?
- Margins by individual product (AKA Margins by SKU): Which product lines are most profitable? How can you grow your sales revenue further with these?
- Value of stock, purchase and sales orders: By tracking these, you’ll know what you’re buying and selling – and what you’ll want to make.
- Average days to sell: This tells you what stock is popular, and vice-versa.
Using inventory software for your BI analysis gives all your relevant staff – from salespeople to accountants – the right data to use in improving operations and productivity.
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