Every business tries to increase its profit
margin, and this can be done by increasing revenue or cutting costs (or,
ideally, by combining these two methods). What is specific about manufacturing
businesses is that production costs are the largest expense they face, which
means any cost-cutting idea is more than welcome. However, it’s not so easy to
achieve this without compromising the quality of products and disrupting
sustainability and that is something that can have detrimental effects on the
image and business results of every company. To help you avoid these common
traps, but still succeed in reducing your production costs, we’ve prepared the
following list of tips and ideas for you to consider.
Utilize lean manufacturing
principles
The idea is to do more with less, i.e. to
reduce ‘waste’ as much as possible. This waste may include waste of resources,
time or workspace. Also, it may also mean that you’re not taking full advantage
of your manufacturing tools or the skills of your employees. Regardless of the
case, each waste results in a financial cost. One of the solutions is to
eliminate this waste and improve production. Start by reviewing how you source
your raw materials and look for the ways to do this at more favorable prices.
Rethink your costs of labor
Next, focus on a potentially bigger target and
that is the cost of labor. This doesn’t necessarily mean you should start
firing people immediately. This would bring some short-terms savings, but
you’ll be spending more in the long run, since you’ll need resources for
finding and training new employees. What we advise is to have a core nucleus of
employees you need to operate and focus on keeping them happy. You should also
carefully review your workforce, since you might be overpaying or simply paying
for a job not done. Identify versatile workers, who can multitask and fill up
other less-tasking roles and never underestimate the importance of seasoned
employees and specialists in one niche, especially if that niche is central to
the business you do.
Train your employees
The money you spend on providing relevant
training to your staff is actually one of the best investments you can make in
the long run. Namely, well-trained staff help businesses run efficiently and
create more profit, since they are more productive. Also worth mentioning is
the fact that when staff are provided proper training there are much fewer work
errors and workplace accidents, which is another way to save money. Basically,
investing in staff training means you’re spending to save money. Finally, they
will be more motivated and loyal to your company, and you’ll also be saving on
unnecessary costs related to staff turnover.
Improve safety
Among the factors that influence labour costs, we’d like to draw your attention to keeping your work premises safe. Taking simple steps like installing a dust collection system that draws dust particles from the air and puts them through a filter to purify the air back into the working environment is just one simple step that you can take. If you
implement safety and health standards on your premises, you’ll be able to avoid
work hazards and accidents, which means your employees will remain in good
shape and won’t be absent from work more than necessary. Also, you won’t have
to deal with workers’ compensation claims and paid time off work for recovery.
That is why many companies are focusing on actions such as removal of hydrogen
sulfide. Namely, those companies hire professionals in a cost-effective hydrogen sulfide treatment,
thus creating a safe and healthy environment for all workers.
Energy costs
Saving energy is important for two reasons: you spend less and you help preserve the environment. Every manufacturing business requires a lot of energy (i.e. money) for heating, cooling, lighting and the operation of special equipment that powers the business. You should start by drafting a new or revising your current working plan to conserve energy. Using LED lights instead of traditional bulbs will help you save money and so will the installation of smart thermostats and sensors to manage your heating and cooling functions. Next, opt for energy-efficient equipment even though it may incur a higher initial investment. Finally, powering off machines or equipment during off-production hours or weekends will help reduce energy consumption by a large percentage.
Rely on technology for help
While it is impossible to completely replace
the use of human labor in your business, you can still try to find the perfect
combination of human resources and technology. Since automation and
technological advancements have completely transformed the look of
manufacturing businesses, it’s safe to assume that they will continue to
dominate in the future. If possible, you should use automation for repetitive
manual tasks, such as e-mail and push notifications, helpdesk support, data
aggregation and migration, backup and restoration, employee leave requests,
procurements, sales orders, time and attendance tracking, payroll, invoicing,
and so on.
Maintain equipment well
The cost of purchasing new manufacturing
equipment is always high, but you can’t run your business with reliable and
efficient equipment, which means you need to invest heavily. Finding financial
resources for purchase or lease of such equipment is already tricky, but if you
don’t look after it properly, you’ll certainly face even more expenses (on top
of all the frustration related to fixing malfunctions). Never wait until
equipment breaks down, but pay more attention to regular inspections and proper
maintenance. Lubricate the machinery regularly to avoid rust, replace filters
and perform technical cleaning. Also, pay attention to potential vibration
anomalies and develop a maintenance plan to maintain all your equipment during
plant stops. Needless to say, you should replace obsolete equipment and
machines that produce unexpected downtime.
Logistics and shipping costs
Logistics and shipping can really affect your
production costs, which is why you need to address them. The logistics involved
in packing or shipping your products may be more expensive than necessary. For
example, you may be losing money because you’re moving your product around too
many times. Waste of time, resources, and high risk of damage to your products
are some of the dangers in this. Minimizing the distance and the time spent
transporting your products will save you production costs. Look for packaging
and shipping solutions that are more efficient, environmentally friendly, and
cost-friendly.
These are just some of the ways in which you
can reduce the costs of running a manufacturing business. While some ideas may
not seem worth exploring further, don’t forget that if you manage to save a bit
in more areas, your total savings will definitely justify the steps you’ve
taken.
