There’s one thing all manufacturers we’ve talked to have in common: they all want to increase efficiency and lower costs. One way to do that is by identifying manufacturing variances by comparing standard cost vs actual cost. These variances help you find ways to lower costs, whether we’re talking about materials, labor, or the overall production process.
In this article, we’ll define manufacturing variances, cover the types of manufacturing variances, and explain how IIoT devices can make tracking and optimizing the manufacturing process a breeze.
What Are Manufacturing Variances?
Manufacturing variances are the differences between the expected cost, also called the standard cost, of making a product and the actual cost spent during the manufacturing process.
Factors like changes in raw material prices, labor costs, supply chain discrepancies, machine downtown, and more can cause manufacturing variances.
Manufacturing variances can be reduced and costs can be lowered by tracking and analyzing their causes and outcomes and taking steps to reduce them. Most modern manufacturers utilize the Industrial Internet of Things (IIoT) and tracking software like enterprise resource planning (ERP) systems and business intelligence (BI) software to identify and minimize variances.
6 Types of Manufacturing Variances
There are several types of manufacturing variances and knowing the most common ones will help you figure out where your business is losing money and how to account for it. Here are the most common types of manufacturing variances.
1. Material Variances
In manufacturing, the cost of materials is frequently fluctuating. Material variances occur when the standard cost of materials differs from the actual cost of the materials used in production. This might happen due to variations in quality, discrepancies in the amount of materials used, or changes in the price of materials.
2. Labor Variances
Labor variances arise from differences between the standard amount of labor hours or rates compared to the actual number of labor hours or rates in labor. You might incur extra labor costs due to idle time, overtime, inefficiencies, or changes in labor rates.
3. Overhead Variances
All manufacturing businesses try to predict overhead costs, but they may change when production is put into action. You might observe overhead variances from changes in utility costs, maintenance expenses, depreciation, or material variances.
4. Efficiency Variances
More manufacturing businesses struggle with efficiency than they realize. Efficiency variances result from differences in the actual level of production achieved compared to the standard level of production expected. You will run into efficiency variances when you have unexpected machine breakdowns, bottlenecks in production, or inefficiencies during the production process and assembly line.
5. Volume Variances
You might find differences between the actual sales volumes achieved compared to the standard sales volume expected. These occur most often when there are changes in market demand or sales promotions and discounts.
6. Price Variances
Price variances result from the differences between the actual prices paid for materials and labor versus the standard prices specified for production. Some reasons why price variances occur include changes in market prices, supplier contracts, or simply negotiating better terms.
How Can IIoT Devices Help Track and Resolve Manufacturing Variances?
Industrial Internet of Things (IIoT) devices can help you track manufacturing variances and reduce their negative impact on your business. Here’s how.
Monitor Equipment
IIoT sensors can be affixed to manufacturing equipment and machinery to monitor their performance and detect abnormalities, inefficiencies, and general quality. IoT sensors can tracak temperature, pressure, speed, vibration, energy consumption, and more. Devices that track these parameters can alert you when variances occur and offer predictive maintenance so you can address issues before a breakdown, helping to reduce unplanned downtime.
Manage Inventory
IIoT devices can be used to track raw materials, the supply chain, inventory, and components in real time. In fact, you can use smart devices to automate tracking from the beginning to the end of the production process. This helps your team avoid material shortages or excess inventory.
Quality Control
Ensure your business produces the highest quality products by using IIoT sensors to monitor product quality at any stage of manufacturing. Collect data on dimensions, weight, defects, and more to rectify deviations from standards and reduce associated variances.
Optimize the Production Process
Use IIoT devics, sensors, and machinery to track data regarding the production process. Track cycle times, downtime, and machine utilization and analyze the data to identify areas for improvement.
Enhance Supply Chain Visibility
Especially if you work with suppliers who also take advantage of smart devices, IIoT devices can offer transparency in the supply chain to help reduce manufacturing variances. Smart devices show you the best and fastest places to source materials and help you efficiently distribute finished products. By equipping shipments with RFID trackers and custom barcodes, you can identify delays and disruptions that impact schedules and costs.
Let’s Reduce Your Manufacturing Variances Together
If you want to optimize your production process and launch your business into Industry 4.0, we can help you get started. Our experts have decades of experience implementing IIoT systems, and solving production issues using cutting-edge technology. Contact us today.
