The Business
A small manufacturer producing finished goods from purchased raw materials, tracking finished-goods inventory closely but treating raw material usage as a rough estimate rather than a tracked number.
The Problem
Raw material purchasing was based on finished-goods production targets and a rough historical waste assumption, without actually measuring material used per production run against material purchased. Waste. Offcuts, defects, and over-ordering. Was higher than assumed, but nobody had the data to prove it or find where it was happening.
What They Changed
- Started recording raw material issued to each production run and comparing it against finished units actually produced
- Found that one specific production line was running 22% material waste versus 6-8% on the others
- Traced the gap to an equipment calibration issue on that line, not a material quality problem as originally assumed
- Fixed the equipment issue and began reviewing material-usage variance monthly across all lines
The Result
Overall raw material waste dropped 18% within two months of identifying the problem line. A direct reduction in purchasing cost with no change in output.
The waste was invisible at the finished-goods level and obvious once raw material was tracked per production run. See Inventory KPIs Every Business Should Track for the tracking discipline behind this.
Could This Apply to Your Business?
- Do you track material used per production run, or only finished goods?
- Would an equipment issue on one line show up before it compounds into a bigger cost?
- Do you know your current raw material waste rate as a percentage?
FAQ
Was the root cause actually a material quality problem?
No. It looked like one at first, but tracing the gap revealed an equipment calibration issue on one specific production line, not a problem with the material itself.
How was the problem line identified?
By recording raw material issued to each production run and comparing it against finished units actually produced, which showed one line running 22% waste versus 6-8% on the others.
Did fixing this require new equipment?
No new capital investment was required. Fixing the calibration issue on the existing equipment was enough to cut overall raw material waste by 18%.
Read the Guides Behind This Story
- Why Inventory Mistakes Destroy Small Businesses. the guide behind this story
- 10 Signs You've Outgrown Excel for Inventory. the guide behind this story
- Inventory KPIs Every Business Should Track. the guide behind this story