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Not so long ago, many companies were not even aware of the term “material efficiency”. Material-efficient production has now become a key competitive factor for many companies. The fact that numerous countries – above all China – are trying to gain exclusive access to valuable raw materials and restrict foreign companies’ access to Chinese raw material sources is only the tip of the raw material problem.
Material costs account for around 46% of total costs in an average production company. In the long-term trend, purchase prices for raw materials are rising by a conservatively calculated 4.14% per year, as measured by the GFMS Base Metal Index.
Total costs are therefore growing significantly faster than the productivity of many companies.
These highlights show that increasing material efficiency should be part of the mandatory program of most production companies.
But where to tackle material efficiency? Measures to improve material efficiency are generally equated with technical improvements to the product. The focus is then on measures to change production processes or reduce waste, as well as design measures.
Many forget that there is enormous potential for increasing material efficiency, particularly in the planning and control of the value stream and the correct logistical design of the product portfolio: The annual inventory-related material efficiency losses attributable to these causes amount to 5.5% to 9% of the inventory value!
Let’s look at the causes in detail: First of all, there is the internal and external diversity of variants. The more alternative products and product variants there are on the market, the greater the risk that finished products will have to be scrapped because there is no longer a market demand for them. The more different the assemblies and individual parts for a product are, the greater the risk of having more than necessary in stock.
The worse and more imprecise the demand forecasts are and the more they reflect the wishes of the company rather than the needs of the market, the higher the inventories generally turn out to be. And they have to be scrapped later, without the material used and the added value invested being converted into revenue.
The main problem here is that unsuitable scheduling procedures and strategies or incorrect, unmaintained master data lead to poor scheduling. As a result, so much material ends up in the garbage can that often not even the cost price is covered.
Ergo: The more that is pre-produced in the interest of high capacity utilization, the more material efficiency suffers.
Two of the most important levers, as our now extensive experience with projects to increase material efficiency shows, are the architecture of the value chain and demand-oriented scheduling. Both levers make a massive contribution to minimizing the risk of rejects due to missing requirements or planning errors. In individual cases, we were able to increase material efficiency by up to 29%.
