Even in the most efficient manufacturing operations, there are opportunities to increase overall productivity. Making several logical changes will enable companies to reduce their manufacturing costs in Mexico and, as a result, increase their revenue.
Experts routinely assert that productivity is never an accident: in fact, they maintain that it’s the consequence of comprehensive planning and effort. Especially in companies that manufacture goods, it is essential to manage operations with an open and innovative mind to detect practices that reduce manufacturing costs in Mexico.
However, to reduce manufacturing costs, we must look at the status quo with a critical eye and look for opportunities in less visible and sometimes the most routine production processes.
Most quality specialists agree that overspending is usually hidden in the procedures taken for granted, such as the use of raw materials and supplies, which are fundamentally important and critical in any company’s production process.
Therefore, in this article, we will examine new ways to reduce manufacturing costs in Mexico to think outside the box and improve operational profitability.
The importance of reducing manufacturing costs in Mexico
Even in the most efficient manufacturing, there are opportunities to increase our productivity through changes that allow us to reduce manufacturing costs and increase revenue.
They say productivity is never an accident: it’s the consequence of planning and effort. Especially in processing companies, it is essential to manage the business with an open mind to detect practices that help us reduce production costs.
However, to reduce manufacturing costs, we must be like detectives and look for opportunities in less visible and sometimes the most routine processes.
Yes! Quality specialists agree that overspending is usually hidden in the procedures we take for granted, such as the use of raw materials and supplies, which are by the way critical in any company’s production process.
Therefore, in this article, we will be detectives looking for new ways to reduce manufacturing costs in order to give a break to the small box of the company and improve our profitability.
For starters, manufacturing costs are comprised of all of the elements involved in the development of a manufacturing project. These include things such as raw materials, technology, labor, and maintenance services, among others.
Even in companies that operate with significant levels of automation, there are always existing opportunities to lower production costs and increase profitability. Although production usually accounts for between 10 and 15 percent of a business’s revenue, reducing them can increase these same revenues by a factor of up to 40 percent.
Although each company is different and unique, it is generally recognized that the most onerous production costs usually consist of raw materials, labor, and supplies. Beyond the significant cost savings that companies can achieve through the employment of advantageously priced labor, other ways that companies can reduce manufacturing costs in Mexico are enumerated below.
10 Ways to Reduce Manufacturing Costs in Mexico
Now that we have focused on the critical importance of minimizing the costs of production, we can quickly identify the concrete steps that can be taken to reduce them. In order to illustrate this point, we can examine ten best practices that experts most often cite when considering this important topic.
- Lower supply costs
Manufacturers can get discounts from their suppliers. This is most often true when products are bought in bulk or on a consistent basis. Another option is simply to look for other providers of goods or services that offer more competitive prices. It is also important to remember that in all cases, it is essential to pay on time in order to avoid penalties and surcharges. Using a contract manufacturing company or a shelter services provider will allow you to take advantage of their economies of scale and purchasing power. They offer in many instances to purchase materials and supplies, MRO, etc., at significant discounts that they pass to their customers because they buy in bulk.
- Save money on insurance
One of the functions of an insurance agent is precisely to advise manufacturing companies to acquire the financial products that best suit their needs.
Additionally, an agent can recommend how to deduct the cost of insurance from its corporate income taxes.
- Implement an MRP or ERP system
MRP and ERP systems are tools that can solve production management issues in a few clicks. In addition, there are already options on the market that have been designed for manufacturers of all sizes. These systems can be purchased at very affordable prices.
A good Material Requirement Planner (MRP) calculates quantities and time that it takes to manufacture a product in an accurate way. However, an ERP (Enterprise Resource Planner) with a built-in production module goes much further. This tool allows companies to manage inventory efficiently and effectively, manage the collection, reconcile production with finances, as well as perform other useful functions.
Furthermore, companies can determine at a glance what they spend and analyze purchase orders, receipts and invoices. In addition to the aforementioned, these systems can often detect theft and embezzlement, making them the ideal choice to reduce manufacturing costs in Mexico and overall operating expenses.
- Work closely with the accountant
Much more than keeping tax accounting, a manufacturer’s accountant must become an important decision-maker in a manufacturing company. For example, accounting firms help organizations to determine which tax deductions can and should be taken and which direction is the best for the manufacturer to take regarding fiscal management issues.
Among the costs of production, there are inputs and deductible items that a company must keep accurate track of. However, with an ERP system, companies seeking to reduce manufacturing costs in Mexico don’t have to worry about saving invoices or archiving them. The installed system will store them automatically.
- Reduce transportation costs
Buying used vehicles or renting transportation units are options worth taking into account. Sometimes there is no significant quality difference between a new and a used van, for example.
- Buy wholesale
Wholesale prices are not exclusive to large companies. Manufacturers can leverage them in two ways:
- With adequate production planning, which allows companies to acquire inputs or raw materials in advance. Given this consideration, having an operating ERP system is especially useful.
- Through partnerships with similar companies, with which we can acquire higher volumes.
- Lease equipment
As with transportation, there are possibilities to reduce manufacturing costs in Mexico when renting equipment rather than acquiring it. Intelligent companies ask themselves if it is necessary to purchase all the machinery that it utilizes, or is it more cost-effected to have them leased?
In the same way, companies can also analyze the option of rent assets that are idle.
- Monitor yields
It is essential that we analyze the performance of raw materials, tools, and auxiliary equipment on a consistent and daily basis. In general, it is essential to control production that requires the permanent monitoring of processes. This is an integral part of maintaining quality and reducing total manufacturing costs in Mexico.
- Standardize processes
Process standardization unifies similar practices with the main objective of reducing loss and waste. It is therefore essential to keep production-associated expenditure low.
- Reduce waste
Finally, we can study how to minimize waste or, if not, leverage it for additional revenue. For example, in some industries it is possible to sell waste to other companies. For instance, this is the case for companies that use plastics whose waste is used to various products.
By summarizing these 10 ideas to reduce manufacturing costs in Mexico, we could also say that collapsing myths is another key to reducing production costs. Inertia and rooted practices must be carefully examined and changed when necessary. In many instances, the results of entrenched processes and practices are no longer measured because they have remained in practice for a long time.
To hear how Prince Manufacturing is reducing costs for their customers contact us.