Ultimate Guide to Manufacturing
The manufacturing process accounts for only a portion of the economy. To understand manufacturing and how your operations fit into it, you must piece together the puzzle that includes the process of creating new products from raw goods. Once you comprehend this sector, you can take steps toward improving your position in the industry by increasing your productivity and maximizing your efficiency by keeping your equipment in good repair.
What Is the Manufacturing Industry?
In the United States, the manufacturing industry accounts for 11.7% of the nation’s GDP and 9% of its employment. Almost one out of every five manufactured goods — 21% — around the world comes from American companies. Since this industry encompasses such a large portion of the economy, you should recognize what this sector includes.
Even the federal government poses the question of “What is manufacturing?” under the Congressional Research Service. The reasoning behind this query lies in the changing nature of the industry. In the past, employees clearly had manufacturing roles, but today, workers in various businesses impact the creation of products from raw materials. Per the United States government, manufacturing businesses only include those that physically add economic value by transforming raw goods into new products. Tangentially involved organizations and individuals do not come into consideration when looking at the country of origin for manufacturing. For example, if a plant assembles a car in the United States but their automation equipment came from Germany, the cars still can bear a made in the USA origin.
Where a product undergoes physical changes determines its origin. However, the location of the production of various parts or materials used in the manufacturing process also helps with traceability. This concept refers to finding the sources of all raw goods used and following them from their origin to the point of sale. Supply chain traceability refers to this big picture look at where products come from. In-house or internal traceability follows goods and parts through your facility. The former is important to the government and consumers who have an interest in origins and production locations. The latter has value for your facility if you need to identify points of problems in recalls. Traceability shows how interconnected manufacturing businesses are to others in the economy.
Another way to look at manufacturing today is as one component of a larger collection of systems that work together for product creation. For example, many manufacturing facilities are integrating automation into their operations. The companies that provide the robots and software for these systems are also part of the manufacturing process, though not involved with the direct production of the products. Without these automation tools, the manufacturer would not work as well. The U.S. government does not consider these automation makers to be the direct manufacturers of the products their robots help to build, but they still make their automated devices and are a separate manufacturing company.
The Purpose of Manufacturing
Without manufacturing, people and companies would have to create everything they use from scratch. The manufacturing industry converts materials into usable goods. The conversion process may use human skills, tools, machinery or chemical changes.
The industry has undergone numerous changes, called revolutions, since its creation. For example, the Industrial Revolution during the 1800s introduced mass production and factory level creation to the world. Making products on a larger scale allowed manufacturers to sell in greater quantities. The factories could also employ more people than the individual cottage industry of previous years could.
This introduction of mass production has created the mainstay of the manufacturing industry for decades. Only recently have companies chosen to search for other means of making products outside of producing large quantities en masse.
Whether a manufacturing company makes its goods all at once, to order or in pieces, it still adds value through the process of transforming raw materials into sellable goods.
Manufacturing has come a long way from the simple mass production lines of the Industrial Revolution. Today’s consumers demand customization for many products. To keep up, manufacturers have had to make changes to their production lines.
Three main production methods exist based on how much of the production the manufacturer completes after the customer places an order. If the company finishes the entire product and waits for an order, it uses the make-to-stock (MTS) method. Facilities that wait until an order comes in before creating the product use make-to-order (MTO), and those that have parts ready to assemble for when they receive an order use make-to-assemble (MTA). These three methods each have their own advantages and disadvantages. Identifying the best production for your facility could transform your manufacturing business.
The most traditional means of manufacturing is made-to-stock production. This method uses previous sales to predict how much of certain products to make. These products remain in stock on shelves until they sell.
While this method allows for long-range planning, it does not accommodate changing market needs that may happen suddenly.
In the 1980s, one company, CAMCO, used this method. However, over time, this manufacturer discovered that it had overstocks of some goods. The process this company used worked as follows:
- Projection: 120 days before production, sales reps and managers in the company projected sales for the next four months.
- Forecast: The vice president of sales combined projections into sales forecasts two months before production.
- Set production schedule: A full month before production, management set the production schedule of what the facility would make.
Every month, so many hours of time went into predicting how much of their products to make that the company wasted 2.7 staff-years of time in creating forecasts. Had all the products sold in their forecasted amounts, this time would have been a good investment. However, the company incurred an excessive buildup of inventory that only increased each month.
For this company, traditional MTS manufacturing production was not the best option. However, it can be effective for certain businesses. Ideally, manufacturing companies that employ MTS have consistent sales throughout the year to prevent inventory buildup.
If this method of production does not fit your manufacturing company’s business needs, alternative production methods exist. These methods try to solve the problems of MTS manufacturing production.
The make-to-order option for manufacturing businesses is an ideal solution for products that require customization. Using this production method, the facility waits until a customer orders a customized product. Only then does the facility start the manufacturing process. The entire process from beginning to end waits for the customer’s order.
The benefit of this method is the ability to completely eliminate overstock since the facility produces nothing until after an order comes in. Unfortunately, this method comes with the disadvantage of increasing the customer’s waiting time.
For individual artists and facilities that build completely custom-ordered parts, MTO offers the best manufacturing method. However, companies that need to get their goods to customers fast may find other options more beneficial to their business plans.
Make-to-assemble blends the best of MTO and MTS. Though sometimes confused with MTO, this method is distinct. First, the manufacturing facility creates the parts needed to build products. When the customer places an order, the facility only needs to assemble the parts together. This method is the one that CAMCO used to improve its production.
CAMCO planned for the change to MTA by redesigning its product line. The new line used more interchangeable parts that workers could install in a variety of products. By producing a stock of these parts, the company had the parts it needed to piece together ovens and ranges more quickly when customers ordered them while also having parts on hand for repairs.
The results for CAMCO showed how well MTA worked for it. This company dropped its finished product inventory from $14 million to $8 million. By using interchangeable parts, the company did not need to have as many on hand, decreasing its extra inventory of parts from $750,000 down to $300,000. With fewer finished products and parts on hand, the company could cut its warehouse costs by 30%. The order fill rate also jumped from 60% to 95%.
This MTA production method worked well for CAMCO. It may not be a good option for companies that manufacture individual parts or need to customize components before assembling them together for a finished product.
Like all other production methods, MTA is one option. It may not serve all manufacturing companies the same. You must examine your sales and products to determine whether MTA, MTO or MTS is the best option for your business.
Differences Between a Manufacturer, Wholesaler, Retailer and Distributor
As noted, manufacturers play a single role within a larger system. This system includes manufacturers, wholesalers, retailers and distributors. While all these players have parts in the movement of goods and materials in the supply chain, they are distinct in their functions.
1. What a Manufacturer Does
The manufacturer takes raw materials and transforms them into new parts. Some manufacturers create components of other products. The trait that sets this group apart from the others is the physical changes that add value to a product. After products leave the manufacturer, they may travel to a wholesaler, retailer or distributor.
2. The Job of a Wholesaler
Typically, you will encounter wholesalers in consumer markets. These businesses purchase large amounts of products in bulk from manufacturers.
The wholesalers store these products in warehouses until a retailer or other entity buys large amounts of the goods to sell. Most wholesalers act as intermediaries in the supply chain. Buying and selling in large quantities and working on a business-to-business (B2B) level are traits that distinguish wholesalers.
3. How a Retailer Differs From the Others
Retailers often purchase from wholesalers to sell directly to customers. Whereas wholesalers buy and sell in bulk, retailers purchase bulk goods and sell them individually to consumers. This type of operation works as a business-to-consumer (B2C) business instead of B2B.
4. Tasks a Distributor Performs
Technically, a distributor does not have an exact definition. Sometimes, wholesalers may go by the term distributors. This name refers to intermediaries in the supply chain. Tasks usually fulfilled by distributors include buying and selling goods, distributing products to markets and providing credit.
On an industrial level, distributors often take the place of wholesalers. They buy and sell products in bulk to move them through the industrial channel.
What Is an Example of Manufacturing?
As it does with manufacturing, the government has definitions for different types of manufacturing sectors. The Bureau of Labor Statistics (BLS) outlines 21 subsectors based on the products produced. These subsectors are:
- Apparel: This sector makes the clothing and accessories worn by consumers.
- Beverage and tobacco: Makers of alcoholic and non-alcoholic drinks and tobacco products fall into this subsector.
- Chemical: Manufacturers in this subsector use chemistry to produce other products from chemicals.
- Computers and electronics: Consumer and industrial electronics are components made by this subsector.
- Electrical equipment and components: This portion of the industry deals with making electrical parts, such as wires, switches and more, that other companies use to build larger products.
- Fabricated metal products: This subsector focuses on making end-use or intermediary metal products through welding, stamping, shaping and bending.
- Food: Producers in this subsector make all things edible.
- Furniture: Makers in this group produce furnishings for homes, offices and other businesses.
- Leather production: Processing animal hides into leather useable for everything from furniture to clothing is how this subsector contributes to the industry.
- Machinery manufacturing: This subsector transforms metal and other materials into machines and machine parts.
- Miscellaneous: Any manufacturing that does not fit into one of the other subsectors falls into this category.
- Nonmetallic mineral production: This industry focuses on processing nonmetallic minerals such as sand and clay into glass, cement and similar products for intermediary or final use.
- Paper: The paper industry transforms trees into a pulp then into paper products such as printing paper, toilet tissue and other consumer and industrial goods.
- Petroleum and coal: Products made from coal or petroleum, such as asphalt or petroleum-based lubricants, fall into this category.
- Primary metal manufacturing: Many companies rely on the metals produced from the ore used by this subsector to create other parts and machinery.
- Printing: The printing subsector uses paper to create printed materials such as books, newspapers, magazines and other resources.
- Plastics and rubber products: Plastic and rubber products contribute to many components of modern life, such as phone cases, computer housing, vehicle parts and more, making this subsector an important part of the manufacturing industry.
- Textiles: This subsector makes yarns or fabrics used by the textile products mills to create linens and more.
- Textile products: Textile product mills in this subsector make all forms of fabric-based products except for apparel.
- Transportation equipment: This subsector creates equipment used in transportation, including cars, planes, boats and trains.
- Wood products: The wood products subsector takes logs and makes them into lumber, plywood and other wood products often used by other industries to create finished products.
Global Electronic Services Fits Into All Types of Manufacturing Business
Wherever your company sits in the big picture of the manufacturing industry, you will eventually need to repair your electronics and other equipment to keep your operations going. To avoid losing productivity, you need a company that offers fast turnaround to help you with your repairs, like Global Electronic Services. Send us a message online to request a repair quote.
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