Does your company suffer from high overhead costs? Are you paying too much for materials and maintenance? Read on for the ten best strategies that will help improve your production process and reduce costs while guaranteeing a higher level of quality.
What is Manufacturing Cost and why is it important to reduce it?
Manufacturing costs are the expenses associated with producing a product. In order to increase revenue and profitability, you should focus on reducing manufacturing costs. Costs can take different forms, and it is important to understand what kinds of expenses are involved in your production process. When you do this, you will be able to run your business more effectively and efficiently.
How to drive cost reduction in manufacturing?
Here are 10 best practices that can help you save money and have quality products consistently.
1. Evaluate your expenses
For an initial step in reducing manufacturing costs, you must identify exactly what costs are driving your company's bottom line. This can be achieved by running an audit and tracking all your key operating costs. You will be able to identify which costs are unnecessary or can be eliminated.
Auditors need to be able to follow transactions through every step of the production process and calculate the costs associated with each level of operation. With so many factors to consider, CAATs (computer-assisted audit tools) are a necessity to ensure accurate and efficient data analysis.
2. Streamline Production
Think about it: how much time do you spend on production issues? How much of your time is spent trying to solve those issues and getting your product out the door?
If you're looking to increase your efficiency, and make your product more cost-effective in the long run, a steady, streamlined manufacturing process is the need of the hour. Consider whether you are producing more than you intended, and how you can reduce it. You can also try to replace any obsolete machinery or outdated furniture with an advanced one that helps in streamlining your production.
3. Improve worker efficiency
An efficient workforce maximizes the potential of the factory. Start by implementing employee training to ensure each member of your team works as effectively as possible. Matching employees' skills to their assigned tasks is a good way to improve efficiency and productivity, but also make sure that workers are comfortable working in the environment you have created for them. Revamp the office space and consider every aspect of your workspace to ensure it supports wellness for your team.
4. Negotiate with vendors
In order to reduce costs, begin by building relationships with your suppliers. Once you have done so, negotiating will be easier. You may also consider looking for deals and arrangements with other suppliers.
In some cases, it may be possible to negotiate with the current suppliers to lower their prices. For instance, the promise of a longer contract with them can influence their decision to provide materials at a lower cost.
5. Cut back on Energy Consumption
Energy efficiency is a key component of reducing energy use in manufacturing and has been shown to have a direct impact on the environment, as well as cost savings. One common problem is that of failing equipment, which causes huge downtime and wasted resources.
To help solve such issues, it's important to carry out audits and see which equipment needs to be shut down when not in use. Also, have frequent maintenance schedules so that machines do not go unused for long periods of time.
6. Remove the "Extras"
Often, ancillary materials such as packaging and documentation can be reduced or done away with entirely. Excess packaging is not only wasteful, but it can also be damaging to the environment. Additionally, excess weight from packaging can increase your shipping costs.
Some forms of documentation can be digitized and completed paperless via an application; this helps reduce the consumption of printer ink and paper or the need for copying facilities. If you print your own documents, going digital can save on paper costs as well.
7. Cut down the transportation costs
Assessing how much time and fuel is used to bring in raw materials and deliver finished goods can help you to optimize your company's efficiency. You may be able to adjust delivery routes to reduce travel time or distance, and thus increase the number of daily shipments.
If you sub-contract shipping, find a transport company that will also undertake the loading and unloading. See if you can negotiate a long-term contract with a competitively priced firm, preferably a local or non-brand company. This could potentially save your business a lot of time and money in the long run.
8. Inventory Management System
Inventory management is an important practice that helps to keep track of a company's stock and ensure that it meets customer demand and internal needs. It helps ensure that businesses have the necessary level of inventory to meet customer needs and avoid excess stock or stockouts, both of which can lead to significant losses. An Inventory management system can help you plan for your inventory production, storage, and shipments. By digitalizing and automating the process, you can decrease the chances of human error, inaccurate prediction, or miscalculation.
9. Move to Automation
Automated technologies can help to make manufacturing plants more efficient. By eliminating waste, meeting manufacturing control and regulatory compliance requirements, reducing labor costs and keeping production on schedule, reducing delivery times, and cutting manufacturing costs.
When labor costs are high, it makes sense to cut back on this area. After all, the devices are more efficient than human input, which makes the production move even faster.
10. Reuse as much as possible
By employing different techniques, such as electrolysis, filtration, reverse osmosis, and centrifugal, you can recover the maximum possible amount of waste from onsite and offsite locations. Rather than throwing away old material, return it to the production line so that it can be reused. Alternatively, sell off the waste to other companies that have a use for it. In this way, you make some money back and avoid wasting resources.
For example, if you are a heavy water user, consider the possibility of doing your own wastewater treatment.
Whether you're new to the production world or a seasoned veteran, there should always be room to improve. These strategies are tools that will help you do just that. If you're looking for guidance in manufacturing cost reduction and profitability, these ten cost-reduction strategies will help you keep your manufacturing costs down and your profitability up.