10.1: Reducing Material Variances
Learning Outcomes
- Discuss strategies to limit and reduce material variances
Ben and Mary want to get Ray in the room so they can hash this out. You are the manager and need to get to the bottom of this issue with the material variances.
Most companies create practical material quantity standards, that allow for scrap, spoilage, inefficiencies and rejected material. The situations we have discussed go outside of what is already built in to our budget.
Example
So back to Ben, Mary, and Ray. You, as the manager, need to sit down with these three and get this problem figured out. Let’s strategize ways to get closer to our budgeted material quantities.
- Ben might want to compare the quality of a previous batch of raw materials against the newer batches. Maybe it is a quality issue that needs to be addressed with the supplier. If this is the case, Ben and Mary can work together with the production staff who use the product to outline the problems. Perhaps Ben could get a discount on the raw materials if it was in fact, a lower quality, to help offset the additional costs incurred by the company.
- Mary can review procedures with the production staff. Mary may need to set some standard procedures, so all employees are doing things in the same way. She may need to spend time on the floor, watching the machines and people work, and noting areas of inefficiency. It might be good to get Ray in on this process as well, just in case there are equipment issues that need to be fixed.
- Invest in newer or better equipment. This may be an option, if analysis shows that the efficiency of the new equipment will improve processes, reduce material or labor usage, improving the production process overall.
- Once the potential issues are identified, bring everyone together to discuss the findings, and determine if the material quantities budgeted are accurate, or need to be modified.
Good systems in place from budgeting to purchasing to production are necessary to insure the best quality product is produced at the lowest cost.
Learn More
For another example, take a look at THIS ARTICLE . No matter what the raw material input, managing waste is a big deal. Whether you are buying a $1 component or $100 per pound product, saving money on raw materials will help to improve the bottom line, as long as the quality is good and waste is minimized.
Practice Questions