Every business wants to reduce operation costs and, at the same time, increase the return on investment, ROI. Even if you have a working strategy, it is crucial to analyze it yearly and make necessary adjustments. Manufacturing companies are no exception. To stay relevant in the business and at the same time achieve the projected growth, workable cost-saving measures should be in place. Here is a guide on how manufacturing companies can reduce costs.
It’s important to remind yourself of the initial company goals and vision before coming up with a cost-cutting plan. What were the growth projection and the purpose of the company? Was it to serve the surrounding community or to grow into a multi-billion franchise serving different states? How was the anticipated revenue trajectory? Has the company managed to reach some or all of its goals? If not, what are the reasons? It’s also essential to analyze the cost of running the
company. This should be broken down into units to make implementation easier and manageable. How much do you pay for the utility bills? Do you have a
marketing plan in place, and how much does it cost? What is the cost of transport and acquiring raw materials? How much workforce do you have, and
what’s the current total expenditure? Employees may be the single most expensive yet vital investment for the company. Another critical consideration is the appliances or equipment invested in the manufacturing company. Are they efficient and dependable? If they are old and keep on breaking down often, this should be a concern. Sometimes, it’s advisable to have a professional auditor analyze and report on the adjustments that need to be made.
Start Improving from Within
A cost-cutting strategy is not complete without involving the employees. They are at the center of all operations; therefore, they may have important ideas that may help the company achieve its goals. Let them understand why you need to cut down costs, make them aware of the repercussions when resources are misused, and encourage them to develop workable expenditure cutting plans. You can reward or give incentives to workers who come up with practical cost-saving ideas.
Prioritize on Return on Investment
Findings from the analysis should be implemented on time to avoid having obsolete processes and redundant staff. The end goal should be to increase the ROI and, at the same time, improve the end-user experience. Through the findings, you may have to cut down some processes, invest in better technology, and maybe shift attention and capital to more meaningful business areas that may be more profitable. It’s also important to clearly understand the importance of Return on Experience ROX, as it affects ROI.
Work at Achieving a Greener Company
Energy consumption at a manufacturing plant can take up a considerable amount of the budget, sometimes crippling other operations but going green reduces energy consumption and, at the same time, reduces pollution. You may have to invest in energy-efficient devices, robots, and automate processes to reduce energy consumption and reduce waste. Do you have a waste management plan? If you deal with lots of scraps, you may consider selling it to a dealer other than destroying it. This reduces pollution and ensures the waste goes to better use after recycling, plus you get some extra cash. Also, when you have a lot of unused materials, instead of leaving it to waste away, a liquidator can help sell it, which puts extra cash into your pocket and, at the same time, frees up space.
Having better, long-term relations with suppliers and freight companies assures you of dependable services. Still, you should negotiate the terms and prices regularly, which may drastically reduce the costs. It also pays to check out other suppliers’ rates, but this should not compromise the quality of supplies and the overall experience. Negotiating for better rates should not be viewed negatively but should forge better relations, improve the experience, boost the business revenue, and build respect between the parties involved.
Embrace Lean Manufacturing
Lean manufacturing removes all work or processes that do not add value to the company. After the analysis, you will have a clear picture of what measures to take, from reducing the front office employees to the sales and dispatch teams. Lean manufacturing looks at producing enough for the market but reduces unnecessary manufacturing and storage costs. The strategy looks into faster production and dispatch processes that regard better technology use while reducing wastages. Lean manufacturing considers the inventory, transportation, production waiting time, quality, overproduction, the required procedures, and creativity. After looking at the areas through which a company can cut costs, the next step is identifying cost-saving types. These may be unique depending on the business group, but here is the list for manufacturing companies.
Automating inventory management processes reduces paperwork, errors, and time used when dispatching or receiving supplies. Faster processes also ensure the safety of the goods, minimize wastage and replacements, and prevent duplication of functions. You will need less staff to manage the automated processes, and the production turnaround improves.
Invest in Efficiency
Slow and old equipment not only slows down manufacturing but uses more energy. Newer and energy-efficient equipment increases the production turnaround while cutting down on energy costs and waste.
Improve on Reliability
When systems keep on breaking down, processes halt, which may adversely affect your expenditure. You still have to pay workers and take care of other expenses, even if the systems are not working. This also affects the quality of your products, delays dispatches, and leads to unsatisfied customers. It’s not just about the equipment but the processes too. There should be a seamless flow of information and supplies from the suppliers for timely production and an efficient supply chain ensuring customers get the products on time.
Check Your Staffing Needs
Automation and adjustments in operations may change your staffing needs. Some processes may be obsolete, while others can be combined, meaning that you may need fewer workers. For instance, when using a manual inventory management system, you may need more employees to handle the task, but this may change to only one employee when the process is automated.
Which processes can you replace with others that are more cost-efficient without compromising the quality? You may find products that deliver the same results but are cheaper than your current options. You may also do away with some amenities such as paid subscriptions that you never use or switch from using a personal car to a shared transport arrangement.
Competitors can be a source of inspiration. Check out how they operate and their cost-cutting strategies. For instance, some may opt for online marketing, which may be cheaper than print. Some food manufacturers may opt to use smaller muffins, containers, and thinner pizza crusts. Whatever strategies you adopt, make sure they are in line with the current market expectations and trends.
After automation, you may still be holding on to paper files that take up a lot of space. Getting rid of them creates space that can be used for other operations or leased, increasing the company’s revenue streams. Additionally, instead of offering dedicated workspaces and desks for each of your staff, opt for non-assigned seatings. This eliminates the need for office furniture such as desks and chairs and frees up space. You may still have unused or obsolete inventory that you can get rid of, reducing storage costs. Equipment upgrades may leave you with appliances that are still in good shape, which can be sold off to scrap dealers. If you have a receptionist whose sole role is to answer the phone, you can have them take care of other company roles then get a call service such as eVoice, and in the end, you save more money.
Do you have any processes that can be combined to save the company money? You can think of combining products and workforce where applicable. For instance, instead of using different insurance companies for company insurance needs, a single provider may offer better and less expensive rates. Also, company vehicles may serve different purposes, such as collecting supplies, delivering orders, and running other company errands.
How Can You Make a Product Cost-Effective?
When strategizing on cost-effective methods, manufacturing companies need to think about the end products. Most of the incurred expenditure in a manufacturing plant is on production; therefore, this is a crucial area. Here are a few insights.
Get Cheaper but Reliable Suppliers
If you already have a reliable raw materials supplier, you can determine if they can offer lower supply rates. Also, figure out arrangements that save you more money. Another option is finding out if other suppliers can provide quality supplies at a cheaper rate. When looking for cheaper suppliers, price should not be the only consideration. Quality, reliable and professional services should also be a consideration. You wouldn’t want to find yourself with unprocessed orders because production has stalled after the supplier is late delivering raw materials.
Optimize the Existing Inventory
Instead of a continuous production process, the company should consider the existing inventory to ensure goods don’t expire while at the storehouse. Instead of piling up supplies at the factory, optimizing the inventory makes sure that initial products into the store leave first. Expiration dates should also be checked to reduce wastage.
Evaluate the Cost of Different Designs
Design is a critical part of the production. It’s important to analyze different concepts and approaches to determine the cheapest yet most satisfactory outcome. When working on the lowest cost strategy, the design, intended end form, and functionality should not be altered or compromised. As the manufacturing team will find out, there may be several ways of creating a design, but the cost implications will be the most important consideration. Manufacturing companies should strive to discover new but cost-effective ways of operation, reducing the end cost of the products without compromising the quality. This makes them remain competitive and relevant in the market place. A cost reduction analysis should be a regular exercise carried out by experts in the industry and the findings implemented immediately. Failure to which, the company may get clouded on its cost-cutting strategies and may not have a clearly defined approach to the escalating expenditure.