If we were to analyze all the manufacturing costs, we could place them in three major groups: material, overheads, and labor. In this ultimate guide, we will go through all these different ways you can utilize to reduce the overall price of doing business, which would help you increase profit margins.
Reducing costs by optimizing labor
1. Reducing wages and work hours
No matter which business we’re talking about, wages usually represent the biggest expense. Their impact increases as the company scales, becoming larger and larger burden for the organization as it progresses through its natural lifecycle. This is precisely why businesses tend to outsource their manufacturing abroad, as it allows them to remain competitive in the global market.
In order to remain competitive and explore new markets, some organizations are forced to invest in research and development. This presumes hiring a better-paid workforce. So, not only does an organization have to hire more people and make them work more hours, but they also have to pay them more.
In an attempt to reduce these costs, most organizations tend to outsource work, effectively reducing the wages. They might even reduce the number of hours and number of employees, leaving just a skeleton crew to make the products.
2. Improving internal processes
Aside from moving your facilities abroad and laying off people, there are other ways to reduce labor costs. We recommend that you consider improving internal processes.
For example, managers often make mistakes with overscheduling. Excessive hours might seem great on paper, increasing the number of units produced, but they also cause employee fatigue.
In order to improve your internal manufacturing processes and increase employee efficiency, you can utilize numerous SaaS tools. These platforms will tell where exactly you’re losing out and how to employ your workers in a way so that they accomplish more with less.
Reducing material and product costs
3. Be more active with suppliers and other partners
Management often makes the mistake of becoming complacent with their partners. They find a company that can provide the best material price, and they don’t revise their strategy for years to come. Not only should you negotiate with all thecable tray online suppliersand partners, but you should constantly renegotiate these prices or find alternatives.
Some managers are reluctant to renegotiate the prices as they feel this would drive their partners away. Keep in mind that as long as you’re making them money, they are unlikely to stop this relationship. It is even easier to negotiate the costs if there are numerous alternatives within the industry.
4. Don’t overstock on materials
Speaking of materials and inventory, one of the worst things you can do is overstock supplies. Having a large stock of material lying around in your warehouses binds your cash to them. Instead of using it for daily operations, you are forced to wait for your inventory to disappear.
Sometimes, managers are too afraid they will lose potential opportunities if they don’t have enough materials to fulfill the incoming orders. This is why you should calculate your turnover. Don’t be too inflexible when predicting inventory; revising your stock every now and then is a very good strategy that all companies should implement. Alternatively, you might also want to consider getting an inventory SaaS.
5. Change your materials when cheaper become available
Something similar can be said for materials as it can be said for suppliers. As soon as cheaper material becomes available, make sure to replace your existing one even if it means that you have to change the supplier.
Keep in mind that sometimes, it isn’t that obvious what is a cheaper material. For example, a cheaper material can even be pricier in terms of plain numerical value, but it might provide savings due to increased durability and other enhanced properties.
Among others, you can significantly decrease your overall costs if you start using recyclable materials.
6. Focus on new technologies and designs
Occasionally, an inefficient product design might hinder your ability to save on materials. For example, you might be using more expensive resources just because your current products cannot support more advanced materials.
Changing your design can affect your costs in another significant way. For example, it might allow you to reduce the overall amount of resources used. Or, you can use the new design to implement sophisticated, durable materials, thus increasing the price of products.
7. Consider the impact of rent
Rent is another thing that scales with the size of a company: the bigger you become, the more warehouse and office space you’ll require. Some companies are rather irresponsible when it comes to renting. Management might rent a property closer to the market or just so they can showcase exclusivity. Soon enough, these costs will starts strangling the business.
Even if you decide to move to another location for this or that business reason, make sure that this is actually worth it. Most manufacturing companies can do well by having warehouses and plants outside of the central city area.
Like everything else on this list, renting costs should be reviewed every once in a while, and you should choose cheaper properties when available. Some companies buy temporary tent structures as a way of cutting costs.
8. Think about optimizing maintenance costs
Another thing you need to do is optimize maintenance costs. When hiring a company to check on your equipment, you need to find someone who is proficient enough yet cheap. Similarly, you need to perform repairs at the right time. Controlling your machines rarely can lead to breakdowns, while checking them too often can lead to unnecessary downtime. Ideally, you should consult equipment manufacturers as to what is the best time to perform machine maintenance.
9. Controlling miscellaneous
Management of manufacturing companies is too focused on the grand picture that they often forget about all the little things. Truth be told, these companies have to consider all the small miscellaneous costs that tend to accumulate over time. From office supplies to other minor items, there are a lot of daily necessities that can increase the overall costs of a company.