Bottom Line: Cleanrooms that rely on ERP systems to track the many costs, activities, and revenues associated with their operation have the potential to deliver a higher ROI by increasing the average machine rate per hour, average markups and profit per production run.
Cleanrooms Need ERP Systems To Find The Path Out Of Price Wars
Plastics manufacturers are relying on and investing in cleanrooms to capture new customers and gain a greater share of revenues from existing accounts. Many are creating their business cases for creating a new cleanroom based on projected increases in production volume that require a cleanroom environment that is operating in compliance with regulatory and industry standards.
Cleanrooms are providing plastics manufacturers with an opportunity to differentiate themselves and charge a higher average machine rate per hour & higher average order markup while also providing short-notice, specialized production runs to their cleanroom customers. Plastics manufacturers with cleanrooms tend to be in the Commodity Zone of attempting to compete on price and availability versus those in the Premium Price Zone. Those in the latter group can sell cleanroom services at a higher average machine rate per hour and a higher average markup. The following is a correlation comparing the average machine rate per hour by average markup based on the 2019 survey of plastics manufacturers by the Manufacturer’s Association for Plastics Processors (MAPP).
The challenge for many manufacturers running cleanrooms today is how to successfully escape from the Commodity Zone into the Premium Price Zone. Based on interviews with plastics manufacturers and the MAPP Survey, the following 5 strategies provide manufacturers guidance on how they can increase their revenues using a cleanroom-driven strategy. The following five strategies will help any plastics manufacturer with a clean room scale up and charge a higher average machine rate per hour, average markup, capture new customers and increase sales to existing accounts.
Proven Strategies For Improving Cleanroom Manufacturing
Manufacturers combining their expertise in a specific area of plastics manufacturing, for example, aerospace, automotive, food & beverage, medical, or surgical products while complying with industry and regulatory requirements are more likely to be in the Premium Price zone. Those manufacturers with ISO 13485, FDA cGMP, and 21 CFR Part 11 compliance are selling their industry expertise, cleanroom availability, and compliance successfully to gain higher average machine rates and average machine hours.
Cleanrooms can cost up to $500K and over a year to construct, require daily cleaning and often also need to be inspected every two weeks by 3rd party specialist companies ensure they stay in compliance to regulatory and industry standards. Building a solid business case for investing in one needs to start with the five proven strategies shown here:
- Making compliance certifications pay and win new customers. MAPP’s 2019 survey shows that the greater the level fo compliance expertise, the higher machine rates per hour plastics manufactures can earn. When plastics manufacturers were asked,, “What is your average markup for manufacturing products in cleanroom vs. open production environment?” Across all 40 manufacturers interviewed, the average market was 15%. The machine rate per hour in a cleanroom environment ranges from $50.80 for Internal Medical Devices (peacemaker, heart monitor, etc.) to a high of $61.00 for Food & Beverage Containers. Those manufacturers able to achieve higher levels of process and system standardization throughout the entire supplier networks reduce operating costs and increase gross margins per order.
- Prioritizing audits to improve quality, scale, and visibility. A regular cadence of internal quality audits provides invaluable data not available through any other process. Cleanroom manufacturers who are the most adept at translating open production time into revenue have streamlined and improved audits to provide only the most valuable findings. They’re doing this by integrating Supplier Quality Management (SQM), Document Control, Training, Production Scheduling, regulatory compliance, and product returns to gain a 360-degree view of product and process quality. They’re also finding that audits surface new metrics and key performance indicators (KPIs) that provide insights into a new are of process improvement and manufacturing quality in cleanrooms.
- Closely tracking cleanroom costs to maintain profitability. Cleanrooms need to be tracked on separate financial statements to the income statement and balance sheet level to know their true revenue contributions. That’s because the largest percentage of operating costs are electrical and utilities. Electrical costs are typically 75% of operating expense. A typical manufacturing cleanroom has air change rates of 15 to 100 or more, requiring an exceptional amount of electricity making utilities a large percent of variable costs (gas, water). There are also the many direct and indirect labor costs, cleaning, maintenance and repair costs, water disposal, and compliance costs to keep a cleanroom in operating condition. Having their financial statements separate makes managing cleanroom operations more efficient and profitable.
- Standardizing on an integrated quality management system to reduce scrap rates, improve supplier quality. Due to industry and regulatory compliance requirements, quality standards in cleanrooms often require a higher level of operational accuracy, transparency, and verifiability compared to open floor production environments. One of the main benefits of cleanrooms having an integrated quality management system is the ability to troubleshoot why reject rates are high on one product versus another, and also seeing how to reduce reject and scrap rates based on production and audit data.
- Extending track-and-traceability multiple layers deep in their supply chains. Track-and-trace is invaluable for troubleshooting supplier quality problems and averting larger quality challenges in the future. In cleanroom production, track-and-trace saves tens of thousands of production hours a year by ensuring components introduced into production meet quality standards. Track-and-trace is relied on by plastics manufacturers in the Premium Price zone to stay competitive from a compliance standpoint too. Track-and-trace is essential for cleanrooms to meet FDA 21 CFR Part 820 compliance.