Starting a manufacturing business is hard work. You have to carefully study the market, benchmark the competition, and seek funds from friends and family. Now, what do you do to keep the business running as smoothly as possible? Simple. You do everything possible to lower production costs. All decisions are based on production costs. If the production costs happen to increase, you’re forced to raise the supply price, which could make customers unhappy.
Production costs can include numerous expenses. Examples include but aren’t limited to labour, raw materials, manufacturing supplies, and overhead. It’s in the best interest of the company to lower production costs. Ideally, you should increase production volumes. If you don’t have the necessary budget to do that, think about trimming expenses. Keep on reading to find out what you need to do to lower production costs at your manufacturing business.
- Keep a close eye on the numbers
Accuracy is of the essence when it comes down to calculating production costs. Therefore, you should track the numbers. Determine how many resources you’ve consumed while making a product. In addition to the physical costs, you must take into account the overall costs. This way, you’re able to make better strategies. The total expenditure varies greatly from season to season, which is the reason why you need to monitor how many trucks you send out during the peak season. You’ll immediately see that the numbers are pretty much the same from season to season and from year to year.
You don’t have to have accountancy knowledge to run a successful business. You just need to pay attention to certain aspects. These are the key performance indicators to watch out for:
- Manufacturing overhead
- Production capacity
- Cash in and out
- Stock in and out
- Labour efficiency
- Cost of the goods sold
The abovementioned metrics will help you find strong and weak points in the production process by giving you all the info you need to improve your business.
Make adjustments to the design
The aim of product design is to meet specifications while not exceeding costs. Products are designed in such a way that they are functional and performing. It’s not a good idea to stick with the original product design. You have to be more flexible. You need to design for affordability and minimization of production costs. Best-in-class companies consider cost implications when making design decisions. It’s precisely why they are able to meet product cost targets. So what if you’ve chosen a material without fully understanding the cost implications? There is still time to make changes. Select different materials, as this can increase your profit margin.
As far as redesign costs are concerned, they range in between 2,1 and 21,5 percent. even the smallest design changes can affect product development. For example, if you work with sheet metal, you can redesign it so that it can be manufactured with the least expense. According to the experts at Regent Engineers, sheet metal parts that are designed in CAD systems can actually be made on the fabric floor. What you need to understand is that you don’t need to design a system for an ideal world. It’s true that customers expect nothing but the best, but that doesn’t mean that you can’t make a good product while saving time and money.
- Think about outsourcing your manufacturing needs
An ever-increasing number of manufacturing companies place their faith in outsourcing because they receive quality at a significantly lower price. Consider letting another company take care of manufacturing. You’re better off outsourcing production to a company that is located far, far away because costs and labour are less expensive. Make sure that the people you hire are technically skilled to carry out the job. If they don’t have special training, the workers should at least have special skills acquired after years and years of work. The outsourcing company will provide in-house manufacturing efforts, so you can meet your fulfilment obligations.
If you’re new at this, keep in mind that only the right contract manufacturing organization can steer you away from trouble. By trouble, it should be understood delays and cost overruns. Outsourcing is something that needs to be done intelligently. Take into account the entire activity. Don’t focus solely on expenses. Perfect efficiency is unattainable. It’s just not possible and it would be counterproductive to try to do the impossible. Workers have to be precise in everything they do. This involves paying great attention to self-assembling structures and not relying on intermediate tooling. Your own employees may have great ideas on how to save costs, so make sure to listen to them.
- Reduce direct material cost
It’s not uncommon for manufacturing businesses to give up on using expensive materials to cut down on direct costs. Expenses of this kind determine when the organisation sells more products. Product development drives a considerable percentage of the product’s cost. Therefore, it’ll be necessary to make a change in the way you obtain raw materials. You may come to the conclusion that it’s necessary to hold extra stock of material so as to avoid paying higher prices in the future. Maybe so, but this strategy can work against you if the prices fall before you get to use all the excess material.
Just think about how much it costs you to transport the material from the location of the supplier to your manufacturing facility. Is it worth it or not? You must find a way to minimize the impact of raw materials on your profit margin. Supplier colocation lowers operating costs, not to mention that it improves service levels. This kind of activity involves aligning the supplier geographically to the production location. You can preserve the investments made in the infrastructure, so the equipment will be hosted in an environment that is prepared for high availability.
To sum up, reducing the costs per unit of production helps you remain competitive and boost profits. Remember that cost isn’t about reducing quality. No matter what you do, make sure you don’t bring down the overall quality.