One of the most valuable skills a cost engineer can develop is the ability to gather accurate information directly from the manufacturing floor. The true drivers of cost are often hidden within the details of the manufacturing process itself.
Japanese business philosophy refers to this concept as genba (sometimes spelled gemba), which is closely tied to the broader philosophy of genchi genbutsu — "go and see for yourself." Rather than relying solely on reports, assumptions, or secondhand explanations, engineers are encouraged to visit the source, observe the process firsthand, and understand the actual conditions under which products are manufactured.
For cost engineers, visits to suppliers' manufacturing operations provide a valuable opportunity to strengthen cost models with real-world observations. In many cases, the most useful information is not explicitly presented during the formal supplier presentation. Instead, it is discovered through careful observation of the production line, equipment, staffing levels, workflow, and factory conditions.
At the same time, supplier visits must always be conducted professionally and respectfully. Suppliers understandably protect confidential information, particularly related to proprietary manufacturing methods, yields, cycle times, and capital investments. The role of the cost engineer is not to pressure suppliers into disclosing confidential information, but rather to observe, ask thoughtful questions, and supplement knowledge using publicly available sources whenever necessary.
Why Genba Matters to Cost Engineering
Cost models are only as accurate as the assumptions behind them. Unfortunately, many assumptions used in cost models are based on outdated benchmark data, generalized industry averages, or incomplete information. A supplier visit provides the opportunity to validate these assumptions against reality.
For example, two suppliers may quote identical products at significantly different prices. A traditional commercial analysis might attribute the difference to profit margin or labor rates alone. However, a visit to the factory floor may reveal major differences in automation levels, equipment age, factory utilization, process yields, staffing levels, or material handling methods. These differences can materially impact the supplier's cost structure.
Experienced cost engineers quickly learn that even relatively simple observations can dramatically improve the accuracy of a should-cost model. Observing how many operators are assigned to a production line can help validate labor assumptions. Measuring approximate cycle times with a wristwatch can provide insight into actual throughput. Looking at visual management boards (posted near the production line) can reveal yield issues that may not otherwise be disclosed. In many cases, the factory floor tells a far more complete story than the conference room presentation.
Observing Manufacturing Processes
The manufacturing process itself is often the largest source of insight during a supplier visit. One of the first objectives should be to understand how the product physically moves through the production process.
As you observe the line, pay attention to how many operators are assigned to each process and whether the operation appears highly automated or labor-intensive. Notice whether operators are waiting on machines or whether machines are waiting on operators. These simple observations provide important clues regarding labor utilization and line balance.
One particularly important metric is cycle time. Suppliers may not always provide exact throughput data, but approximate cycle times can often be measured simply by observing the process and using a common wristwatch. Timing how long it takes for one completed assembly to exit a workstation can provide a surprisingly accurate estimate of production capacity.
Another area that deserves attention is indirect labor support. Cost engineers often focus heavily on direct labor while underestimating the indirect labor burden required to support manufacturing operations. During the visit, observe how many individuals are supporting the line in supervisory, maintenance, quality, engineering, logistics, and material handling roles. These support functions can become a significant contributor to overall manufacturing cost, particularly within technically complex operations.
Quality and machine uptime information can also provide valuable insight. Many manufacturers prominently display statistical process control charts, scrap metrics, first-pass yield data, downtime information, and safety performance boards directly on the production floor as part of visual factory management. Cost engineers should pay close attention to these displays because they often reveal operational realities that are not mentioned during formal discussions.
Understanding Equipment Depreciation and Capital Costs
Whenever possible, cost engineers should note the manufacturer and model number of key production equipment. This information becomes extremely valuable later because it can be used to research machine specifications, capabilities, and approximate acquisition costs online. Many equipment manufacturers publish technical brochures and performance specifications on their websites, often including throughput information, power requirements, floor space dimensions, and automation capabilities. Simply recording the machine nameplate can significantly improve later cost analysis.
It is also useful to ask suppliers how old the equipment is. Publicly traded suppliers frequently disclose depreciation schedules and capital spending information within their annual 10-K reports. Comparing observed equipment age with publicly reported depreciation data can provide insight into how aggressively the supplier depreciates assets and how much capital burden may still be embedded within the quoted pricing.
Evaluating Floor Space Utilization
Factory floor space is another overlooked cost driver that can often be assessed visually during a supplier visit.
Efficient factories typically exhibit organized workflow, controlled inventory levels, and minimal unnecessary movement of material. Poorly utilized facilities, by contrast, often contain excessive work-in-process inventory, redundant material handling, unused floor space, or poorly balanced production flow.
As you walk through the facility, observe how much floor space is occupied by the manufacturing line and how efficiently that space appears to be utilized. One useful technique is simply to pace off the approximate dimensions of the equipment area. Even rough estimates can later be used to approximate facility allocation costs within a cost model.
Pay attention to the amount of visible work-in-process inventory (WIP) as well. Excessive WIP frequently indicates production imbalance, scheduling inefficiencies, bottlenecks, or quality issues. Material stacked in aisles or excessive staging areas may suggest inefficient production flow or insufficient line balancing.
Special facility requirements should also be noted carefully. Some manufacturing environments require expensive infrastructure such as ESD flooring, clean room conditions, specialized air handling systems, humidity control, or explosion-proof electrical systems. These requirements can materially increase factory overhead costs and should be reflected appropriately within cost models.
Utility Usage and Operational Overhead
Utility consumption is another cost element that is frequently underestimated. Once again, equipment observations become important.
By documenting equipment manufacturer and model information, cost engineers can often estimate utility consumption later using publicly available specifications. Large ovens, furnaces, compressors, injection molding machines, and reflow systems may consume substantial amounts of electricity, compressed air, chilled water, or process gases.
The overall factory layout can also reveal useful overhead information. During introductory presentations, suppliers often discuss facility size, employee counts, or operational footprint. Cost engineers should pay attention to how much space is devoted to manufacturing versus warehousing, engineering, laboratories, and office functions. A facility with excessive warehousing space or low production density may carry significantly higher overhead burden than a highly optimized operation.
These details become especially important when evaluating suppliers operating in high-cost regions where facility overhead can materially impact quoted pricing.
Using External Data Sources to Fill Information Gaps
Even during highly transparent supplier visits, there will always be information gaps. Suppliers may understandably decline to share confidential data regarding cycle times, yields, machine rates, or proprietary process details. Fortunately, modern cost engineers have access to an enormous amount of supplemental information through public sources.
Internet searches can often provide surprisingly detailed manufacturing information. Equipment brochures, factory tours, conference presentations, investor reports, and technical papers frequently reveal useful process details. YouTube can be particularly valuable.
One memorable example involves a wire harness supplier that would not allow viewing part of their manufacturing process due to the "confidentiality" of cycle time and headcount information. However, a publicly available YouTube video later showed the same production line operating during a company promotional video. By carefully observing the video, approximate cycle time, headcounts, and other data could be easily measured and later incorporated into a cost model.
Patent databases are another excellent source of manufacturing intelligence. Many suppliers patent proprietary manufacturing methods, tooling approaches, automation concepts, and process innovations. Patent filings often contain diagrams, process flow descriptions, and technical details that allow cost engineers to gain insight as to how products are actually manufactured.
Supplier annual reports, technical conference papers, industry benchmarking studies, and even job postings can also provide useful clues regarding equipment, staffing levels, manufacturing technologies, and factory capabilities.
The key is to combine firsthand observations with publicly available information to create the most accurate and defensible cost model possible.
Final Thoughts
The best cost engineers do not simply provide should-cost estimates. They are manufacturing observers, investigators, and experts in industrial operations who are constantly collecting data. They provide insight into how to make processes more efficient.
Genba teaches us that true understanding comes from directly observing reality. Supplier visits provide valuable opportunities to validate assumptions, identify hidden cost drivers, and develop far more accurate cost models than could ever be achieved through desk analysis alone. Go and see for yourself.
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Jeff Miller Jeff Miller is President and Co-Founder of SPCEA and has 40 years of engineering, manufacturing, and commercial experience within the electronics and semiconductor industries. He has served in leadership and direct-contributor roles at General Motors, John Deere, Standard Motor Products, Ford Motor Company, Whirlpool Corporation, and Panasonic Automotive Systems. Jeff has been active within the cost engineering profession since 2002.
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