Back in the day, e-commerce used to be a more affordable alternative to brick-and-mortar stores. Now, with big competitors like Amazon, running an e-commerce business has turned into a more pricey endeavor, and online business owners are constantly searching for new ways to cut costs, primarily in the department of manufacturing.
The relentless transformation of the e-commerce landscape has made it crucial for entrepreneurs to optimize their manufacturing costs. In addition to growing competition, shifting customer expectations, increasing marketing costs, supply chain disruptions, and the necessity for more sustainable practices all serve as contributors to an increasing demand to create cost-saving opportunities in manufacturing processes.
To ensure the maximization of profits, let’s explore six strategies to help your e-commerce business optimize manufacturing costs.
- Assess Supply Chain Management
Before diving in head-first and cutting out all non-essential expenses, evaluate your current supply chain. An efficient, streamlined supply chain management is paramount for maintaining steady manufacturing costs.
Start by assessing your suppliers and look for opportunities to negotiate better terms. Establishing a mutually beneficial relationship with your suppliers early on can be a crucial cost-saving tactic. Understand the two main points of interest for your suppliers — payment times and order sizes — and work to accommodate them in those areas, while also negotiating options for payment discounts.
If your suppliers offer fixed price breaks, consider increasing your order amount and buying in bulk. For an additional cost reduction, you could attempt to negotiate a freight-free deal, which would involve a discussion on how much you’d have to buy for your supplier to waive the freight fee altogether.
The tactic you choose will depend on the size of your company and your current warehouse arrangements, but your overall goal should be to reduce storage costs and minimize excess inventory.
- Look Into ‘Lean Manufacturing’
The concept of lean manufacturing focuses on cutting back on waste and maximizing efficiency in the production process. First, you must identify areas where non-value-added activities could be increasing costs. This includes the production of off-specification products, excess raw materials, components, or services that result in scrap, replacement production, and defective materials.
Once you’ve identified these wasteful activities, you can start to intensify efforts to find more efficient ways to add value to the company’s product line. Then, you can work to shorten production cycles and hasten response times. Incorporating lean manufacturing practices can ensure your business experiences increased efficiency, reduced waste, and lower manufacturing costs.
- Optimize Product Design
In e-commerce, one of the most overlooked areas to cut costs is product and packaging design. When just starting, many e-commerce organizations settle for the simplest and least expensive packaging option. However, this might not translate to any long-term savings. If your packaging is too big or heavy or contains an excessive amount of packing material, you could be adding significant extra expenses each month.
First, avoid getting sucked into the one-size-fits-all packaging approach. You should always attempt to find the lightest packaging available for your product, while still ensuring the goods are protected on the inside.
Try to use as little protective cushioning as possible. This will depend on the fragility of your items, but more often than not, you won’t need nearly as much cushioning as you think. Then, not only will you cut back on costs for protective cushioning, but you’ll also save on shipping weight and smaller box sizes.
If your goods require more complex packaging, consider working with your product development team to identify areas where design modifications can reduce material usage, streamline production, or improve the ease of assembly.
- Consider Outsourcing Manufacturing Processes
Outsourcing non-critical functions of your manufacturing process can prove to be the wisest financial move for your e-commerce business. Partnering with a third-party service provider can help cut your operating costs, while also allowing you to focus on the more critical aspects of your business.
Whether you choose to outsource some or all manufacturing processes, it’s crucial to look for a provider that has a track record of consistent quality and cost-effectiveness. Especially if you’re a more established e-commerce business and you’re looking forward to scaling, you can benefit from a reliable manufacturing company’s expertise and low labor costs.
- Turn to Automation
Another strategic way to reduce your e-commerce manufacturing costs is to automate repetitive manual activities that are prone to human error. By automating tasks, you can reduce labor costs, improve accuracy, and increase production speed.
Look for a service that provides automated workflows that can add new customer contact information to your email marketing tool, log sales into your accounting software, track all your sales data, take action for abandoned cart events, and post new products to social media platforms.
Not only does this free up your schedule and enable you to focus on more crucial business activities, but it also serves as an effective way to cut back on employee costs, especially if you’re just starting out as a new e-commerce company.
- Go Green With Your Manufacturing
Adopting energy-efficient and eco-friendly policies in your workplace will not only reduce your environmental impact but also save you money. This can be as simple as turning off lights in unused warehouse areas, using energy-saving lightbulbs, or using refillable ink cartridges. Over time, you can expand those efforts into areas like using energy-efficient equipment like solar panels or changing out all packaging to recyclable materials.
Additionally, you might find that your consumers actually prefer more environmentally safe products, which can boost your brand’s reputation and drive more sales. The e-commerce marketplace is growing steadily, and companies must continuously evaluate their manufacturing processes to adapt to changing market conditions, fluctuating operation costs, and evolving technology. Making a few adjustments now can result in a big payoff down the road.
By keeping your manufacturing costs under control, your e-commerce business can expect to thrive and maintain its competitive edge in the ever-evolving e-commerce landscape.
