5 Hidden Costs in Industrial Manufacturing (And How to Reduce Them)

When external costs go up, internal costs need to go down. Otherwise, you’re in a race to the bottom. But are industrial manufacturers finding every opportunity to run more efficient and profitable businesses?

To help you drive growth in a challenging market, Aptean has released an eBook on How to Propel Growth by Reducing Your Cost of Doing Business. However, it’s not just the obvious areas that your industrial manufacturing business needs to optimize.

Often, there are hidden costs within your end-to-end production that can erode your profit margin. Addressing them could prove critical to driving company growth at a time of high material, labor, energy and other costs.

What are these hidden costs in industrial manufacturing? And, more importantly, how can you reduce them? Let’s take a look.

Hidden Cost #1: Slow or Inaccurate Quoting Processes

Unlike manufacturing sectors where quotes can be ‘lifted and shifted’ from one job to the next, industrial manufacturers often quote for custom products.

Getting hold of accurate information for custom quotes can be a time-consuming process involving heavy input from engineering teams. The longer it takes to convert opportunities into approved jobs, the less work you can turn around. Plus, you may lose out on business because someone else was able to get their proposal together faster.

Yet custom job quotes can’t be rushed. Without paying full attention to detail, you risk under-pricing work and ultimately not making a profit. So, what’s the solution?

One of the simplest ways to speed up quotations without compromising on accuracy is to automate quoting and estimating using specialist industrial manufacturing ERP technology. Aptean research conducted in Q4 2022 found that 58% of manufacturers are still relying on manual quoting processes—showing there’s significant opportunity for cost savings in this area.

Unlike general ERP solutions, which require standard product definitions to sell and manufacture products, industry-specific ERP software supports custom quotes without standard product definitions. A specialized manufacturing ERP solution like Aptean Industrial Manufacturing ERP can also track costs and margin percentages across multiple versions of a quote, so you can improve quoting accuracy with every job.

Hidden Cost #2: Unintegrated CAD Software

A seamless transition from design to assembly helps to main quality, consistency and speed of production. Yet many industrial manufacturers still manage planning and execution through separate systems.

Siloed CAD and ERP software may be costing your company, as critical design information can’t be pulled through to create accurate production plans or bills of materials (BOM). Instead, your team must manually import and export data, which can lead to errors and inefficiencies. It’s also hard for them to incorporate design revisions once the initial BOM has been created.

Integrating CAD and ERP technology simplifies the process of building BOMs and smooths the transition from design to production helping to prevent overruns and quality control issues. Flowing CAD data directly to the production floor also allows for quick turnarounds and shorter lead times.

With an integrated solution, data can be passed bidirectionally between ERP and CAD software. This enables on-screen renderings to be shared between the two systems so that every department is working with the same secure data, with no need for manual data re-entry.

Aptean Industrial Manufacturing ERP integrates with most major CAD software including popular packages like AutoDesk and Solidworks.

Hidden Cost #3: Inaccurate Bills of Materials and Routing

47% of industrial manufacturers are concerned about the rising cost of raw materials, according to Aptean research. Yet bill of material creation and routing inaccuracies are inflating production costs for many organizations.

BOMs are a critical document for accurate, timely production. Detailed information on the raw materials and components needed for each job inform multiple parts of the manufacturing process, from inventory management to quality control. Missing parts can delay production, plus it costs more to order a replacement component separately.

BOM data also enables industrial manufacturers to accurately calculate the cost of production so that jobs are priced correctly. It’s not uncommon for whoever’s creating the quote to use the price for one component, only for whoever’s overseeing production to use a more expensive option.

Despite BOMs being central to profitable production, many generic ERP systems have limited capabilities, so they struggle to manage complex bills of materials. Revision capabilities may be limited too, so engineering teams find it difficult to track component changes.

Choice of technology plays a pivotal role in helping manufacturers to manage (and minimize) material costs. A sector-specific solution like Aptean Industrial Manufacturing ERP enables companies to manage products with multi-level BOMs and experience the advantages of full revision control and document linking capabilities.

Hidden Cost #4: Material Waste

Reducing waste is a feature of sustainable manufacturing strategies, but it’s also an opportunity to save money.

Scrap from flawed production processes is a direct financial loss for industrial manufacturers, as well as being a setback for environmental impact goals. Meanwhile, lack of supply chain clarity can result in excess inventory taking up valuable storage space.

Almost a quarter (23%) of industrial manufacturers in North America told Aptean that reducing waste is one of their core targets for this year. Improving material efficiency starts by understanding your current waste levels—which is only possible by setting and tracking KPIs.

Using industrial manufacturing ERP software to create and monitor key business metrics will help your organization to see where material is being wasted. An industry-specific solution can track KPIs relating to inventory management, quality control and job profitability, to understand where changes can be made that enhance your bottom line.

Aptean Industrial Manufacturing ERP enables manufacturers to establish distinct KPIs: for example, comparing expected reject ratios to actual totals. By identifying the "what" you can then look for the "how"—finding the root cause of problems that are generating excess waste.

Industry-specific ERP software can also help your organization to introduce new workflows and processes that reduce waste levels going forward. For example, automated checks can reveal quality control errors and your ERP system can prompt employees to rectify the error before production is complete.

An ERP system with traceability tools can also help to manage the impact of quality control issues. In the event you need to scrap a product, you can trace back through the production process to determine if there was a process issue (like incorrect assembly), or if you’re getting bad parts from a supplier.

Hidden Cost #5: Legacy ERP Software

Most industrial manufacturers are on the path to digital transformation; Aptean’s research found that 99% of organizations have started digitizing their business, while 17% have already completed digital transformation projects and are realizing the benefits.

But while automation is an ongoing process for manufacturing companies, the value and capabilities of technology investments must be regularly reviewed. Unreliable equipment can increase the time and cost of IT management, while digital solutions that are no longer fit for purpose can create disjointed operational processes and impact your scalability.

One major hidden cost within industrial manufacturing organizations is legacy ERP software. On-premise solutions are particularly costly, as they are time consuming and disruptive to maintain and repair. Equally, it’s slower and more complex to upgrade on-premise systems compared to cloud-based solutions.

Aptean research into the bottom-line impact of technology choices has found a direct link between cloud-based ERP software and company growth. Industrial manufacturers using a cloud ERP increased their annual revenue by 10% on average in 2022, compared to 8.5% among manufacturers using an on-premise ERP system.

Switching to an industry-specific ERP solution can also help you to drive company growth. Generic ERP solutions often require expensive add-ons or customizations to meet your manufacturing needs, whereas an industry-specific ERP has those features built-in and ready out of the box.

The difference is tangible: Aptean’s study found that industrial manufacturers using a specialist ERP solution increased their year-on-year revenue by 7.3% on average from 2021 to 2022. Meanwhile, generic ERP users experienced 6.6% annual revenue growth and homegrown ERP users increased revenue by just 5.3%.

Eliminate Hidden Costs with Aptean Industrial Manufacturing ERP

Driving growth in a challenging market means seizing every opportunity to reduce business costs. By looking beyond the obvious optimizations for hidden costs in industrial manufacturing, you’re finding money-saving opportunities that other industrial manufacturers can’t see.

Of course, identifying these hidden costs is only half the solution. The next step is to eliminate them—something that is much easier to achieve with industry-specific ERP software. Aptean Industrial Manufacturing ERP software is an end-to-end solution for manufacturers in dynamic “to-order” environments.

We have developed industry-specific features onto a fully web-based platform with modern easy-to-learn interfaces. From shop floor to delivery, our ERP for discrete manufacturers delivers visibility, control and efficiency. All of which will help to lower your cost of doing business.

Book a personalized demo of our Aptean Industrial Manufacturing ERP software. Or, for more industry insights, download Aptean’s 2023 Manufacturing Forecast.