There’s no denying that manufacturing get expensive. While investments like custom manufacturing can go a long way in helping you stand out from the competition, if you’re not careful, the expenses could hurt your profit margins or require you to price your products at a level that makes them far less appealing to potential customers.
Fortunately, there are several actions you can take to lower manufacturing costs so that you can increase profitability without necessarily lowering the overall quality of your goods.
Perform a Self-Audit
To effectively lower your manufacturing costs, start by performing a self-audit. This audit should take an in-depth look into the manufacturing processes you use (including how labor is utilized, the materials you use and other procedures). It should also consider indirect and administrative costs that contribute to total business expenses associated with each product.
Auditing both your fixed and variable expenses will allow you to identify areas where spending seems higher than it should be. It can help you recognize both internal and external operational inefficiencies. An audit will serve as a valuable starting point for determining what changes you need to make.
Reduce Materials Costs
Materials are a significant expense for any manufacturing operation. You don’t necessarily want to switch out the type of materials you use (especially for products with specific performance requirements), though this can sometimes be an option. However, it never hurts to look for less expensive or more efficient materials suppliers.
Other options could include negotiating discounts in exchange for actions such as signing a long-term contract, ordering materials in bulk, or making early payments. You may not even need to switch suppliers to lower materials expenses.
Eliminate Excess Packaging
Packaging costs are an often overlooked expense in manufacturing. Packaging that is too big for the product being shipped will require extra packing material as well. Not only will these additional materials increase total expenses, but they will also significantly increase the weight of each shipment, which drives up shipping costs.
Instead, save money by opting for the lightest and smallest packaging options available for your products. Chances are, you can reduce the amount of “protective” packing materials used for your shipments as well. This will help you save money on the costs for raw packaging materials, while also lowering costs linked to the shipping weight of each package.
Switch to Paperless Documentation
Many manufacturing facilities continue to rely on print documentation. While this may have worked well in the past, the costs can add up over time. Paper, printers, ink, and other related materials can add to your bottom line expenses. In addition, relying on such paperwork tends to be less efficient than digital alternatives, which can make your team less productive.
In fact, it’s been reported that 84% of businesses that go paperless achieve full ROI in less than 18 months. While tech and software investments to help you go paperless may seem to have a higher upfront cost, the long-term savings (and improved efficiency) are well worth it.
Invest In Predictive Maintenance
Manufacturers experience an average of over 15 hours of equipment downtime each week. Unplanned downtime, in particular, can throw off production schedules and significantly hurt productivity and profitability. A reactive approach to equipment maintenance, repairs and upgrades can prove costly.
The most effective manufacturers invest in predictive maintenance. They go beyond following recommended equipment maintenance guidelines, using machine analytics to proactively identify when equipment might need repairs or service — or even when it might need to be replaced. Such tools can also help manufacturers identify the best time to perform needed work to further minimize downtime and total maintenance costs.
Manufacturing is filled with repetitive manual activities — and not just on the manufacturing floor. Many back office activities are similarly necessary, yet extremely repetitive and time-consuming, making them prone to inefficiency and human error. The average rate for human error is 1%, meaning that for every 100 data points someone tries to record manually, they’ll make at least one mistake. The potential costs (time and otherwise) of each mistake can add up quickly.
Just like how robots can improve the efficiency and safety of manufacturing processes, you should also consider tools and services that can help automate other workflows. Tools that aid in tracking sales data and shipments or monitoring inventory levels can provide instant information to help your team make better-informed decisions. Simply freeing up your time for higher-level tasks can dramatically improve overall productivity and help you become more profitable.
Streamline Your Logistics
Though not part of the actual manufacturing process, your logistics operations are a critical part of getting finished products to consumers. For example, poor inventory management could result in needing to store excess unsold products in a warehouse for months at a time. Or, you could find yourself going out of stock of high-demand items. The wrong logistics partners could result in higher delivery fees or poor handling and delivery timeframes that lead to frequent customer complaints.
Sound inventory management and regular auditing of your logistics partners will help you streamline your operations and work more efficiently. Potential ways to eliminate logistics inefficiencies and reduce costs include auditing partners (and ending contracts with less efficient ones), and focusing on collaborative long-term relationships with top performers.
Lowering the total cost of manufacturing a product and getting it to your customers may feel like it requires a lot of work. But this is ultimately an investment in your business’s future. By taking steps to make your manufacturing process more cost-efficient, you can achieve stronger growth at any stage of your business’s journey.