The hidden materials handling costs every OEM should be aware of

Many of the expenses within your electronics manufacturing business are highly visible and undergo regular scrutiny. But there can also be much to be gained by keeping track of those less obvious material costs that may not be formally accounted for in your monthly reporting.

Taking the time to identify and review any ‘hidden’ costs, and to assess the impact that they may be having on your bottom line, could present a golden opportunity to create visible and measurable savings.

In this blog post, we highlight four areas of materials handling practice OEMs are advised to look at in more detail in order to make small, but nonetheless significant, improvements in efficiency and profitability.

1. Hidden material procurement costs

Your purchasing department is tasked with liaising with multiple vendors and for managing all of the relationship nuances of those vendor agreements. On any one day they’re likely to be sourcing new suppliers, negotiating purchase contracts, working through daily replenishment reports, responding to ‘urgent’ shortage fulfilments or managing supplier queries.

But while many of these tasks are expected, and in many cases are considered to be core parts of the process, they also take time.

Some questions you may want to consider then: How much are these ‘urgent’ shortage fulfilments really going to cost? Are there any trends and if so, what are the causes for them? Even if the unit cost of the material is only a few pence, like a surface mount resistor or capacitor, what could this mean if the material is needed out on the production line there and then? How much is the production line costing you on an hourly basis? And what other jobs is this down-time impacting? Do you now need a premium to get the parts delivered the same day and will you have to buy excess stock of the part?

Every business will have its own strategies for dealing with each scenario, but it’s worth bearing in mind that what might be on the face of it simply a ‘penny part’ could be costing you a lot more in real terms.

2. Hidden Material Receipt Costs

The physical process of inspecting and booking materials into your system is a measurable activity. But even if you’re already monitoring supplier delivery and quality performance in some way, are you also taking into account the ‘hidden’ costs of receipting your materials?

There could be value in taking a look at a few of the metrics that may not feature in your monthly reports. Even the smallest of details can make a substantial difference - whether it’s the number of times that the Goods Inwards door is opened and closed to greet couriers; how many minutes are spent accessing specialist equipment to unload goods; the time and human resources required to implement Health and Safety procedures; and the unpacking, sorting and recycling of supplier packaging.

While many of these processes may seem obvious, it’s likely that a number of them are taking place on an hourly basis with your deliveries. And once you factor in how many deliveries you’re getting every day, these costs can soon mount up, so the question is how are you recovering these costs?

3. Hidden Material Warehousing Costs

Physical stock accuracy is one of those more scrutinised monthly material costs. But what about the effects of some of the less desirable stock control issues such as stock discrepancies, write-offs, damages, minimum order quantities or obsolescence? It’s important that these less obvious losses are measured and appropriately apportioned within your business.

The physical area that you have available, and how you make use of it, can be another major contributor to your overall costs and can represent a significant visible expense on your Profit & Loss (P&L) statement. What would you do with all that floor space if you didn't have to hold so much stock? Could it be used for manufacturing? Or perhaps it would give you some much needed office space?

Where your raw materials or finished goods are located within your warehouse and how easily accessible they are by your pickers, could be costing you in terms of the time taken to access them. Using your space efficiently can help your staff to complete their tasks more quickly, up your production levels and remove the need to expand into larger premises.

4. Hidden Material Pre-Production Costs

One of your manufacturing team’s top priorities is to ensure that all your labour and capital equipment are being utilised as efficiently as possible. And this can often mean a request for some element of material ‘presentation’ prior to printed circuit board assembly (PCBA) - whether that relates to device preparation (such as cropping or pre-forming), moisture storage, handling or packaging requirements, pre-programming or test.

It's important that these additional activities have either already been captured within your overall costing model, or that they’re going to be reflected elsewhere.

So there you have it. Four small but surprisingly significant ‘hidden’ material handling costs that, if addressed, could have a positive impact on your company’s bottom line.

In an increasingly competitive manufacturing environment in which literally every penny counts, staying mindful of even a few of these ‘hidden’ costs could offer some substantial benefits for your PCBA productivity and profitability.

An Introduction to Outsourcing Your Electronics Manufacturing

Written by Neil Sharp

Neil has over 25 years’ experience in Electronics Manufacturing Services and Component Distribution. During his career, Neil has held a range of leadership positions in sales, marketing, and customer service. Neil is currently part of the ESCATEC Senior Management Team and is responsible for setting and delivering the overall Group Marketing strategy. Neil heads up the marketing department and is responsible for both the strategy and the implementation of innovative marketing campaigns designed to deliver high quality content to those seeking outsourcing solutions.