JBE Incorporated

Factory Overhead Costs – How to Reduce them!

The Truth about Reducing Factory Overhead Costs & Burden

Factory overhead costs otherwise known as factory burden are mainly indirect labor and other indirect costs such as quality, management, material sourcing, and cost of the operating space, i.e. electricity, hvac, etc.

In the world of manufacturing, high overhead has a huge effect on profit margin and ultimately competitiveness

What role can Lean and Continuous Improvement projects play in reducing factory overhead costs?

The people doing your work are your best resource. Solicit suggestions from them, as they are in the best position to know where you have any bottle-necks or redundant processes that are adding to your costs.

That being said, the Worst Words you can say is “we’ve always done it this way”

Maybe you have heard of the story of the mother teaching her daughter how to cook a pot roast. While preparing the roast, the mother cut a couple of inches off the end and set it aside. Her daughter was curious as to why she did this. The mother told her that’s the way her mother showed her, to which the daughter again asked: why? The mother wasn’t sure, so they called the grandmother and asked her. The grandmother’s response was the same as the mother’s…her mother had trained her that way. This did not satisfy the little girl. The mother and granddaughter decided to go visit the great-grandmother and ask her the same question as to why they all cut off a couple of inches of the pot roast before cooking it. The great-grandmother had a nice laugh at the question and said she always cut some of the pot roast because she did not have a large enough pan to cook it in….

This well illustrates the need to continue to look at all processes objectively and question everything on a regular basis.

One place manufacturers can reduce their factory burden is receiving module or sub assemblies which reduces the number of internal transactions. Internal transactions such as dock receiving procedures, material movement, accounting and AP transactions performed by indirect employees can be greatly minimized.

JBE, Inc specializes in assembly services, especially complex module assemblies that reduce your indirect and factory overhead costs.