As simple as it may sound to reduce manufacturing costs, many producing companies are often at a loss. But the plain fact is, it does not matter how popular your product if you can’t sell it at a profit. It pays to understand these key ways to reduce manufacturing costs and increase profitability.
Reduce Manufacturing Costs to Increase Productivity
Perhaps management focus for your company is increasing productivity more than decreasing costs. Yet these are basically two sides of the same coin. Stated simply, productivity is the rate of output per unit of input. While many inputs are fixed, many are quite variable. And herein lies the greatest potential for improvement in the effort to reduce manufacturing costs.
It is increasingly important to increase productivity vis-à-vis the cost of turning out quality products. But the best methods of cost effectiveness are often varied. And for some, the quest to reduce manufacturing costs and boost productivity can lead in opposite directions – leading some to increase production and others to reduce or even outsource production. Depending on your unique situation, any of the following methods may be ideal.
5 Ideas to Reduce Manufacturing Costs
1. A Thorough Cost Assessment
The first step in cutting costs should always be to take stock and thoroughly assess your current operations. Objectively analyzing each step of your product and process will enable you to better understand each point along the value chain and how to deliver more for less.
2. Design Changes
As painful as it may sound, there are times when the best cost-saving option is to go back to the drawing board. Of course, a complete redesign may not be called for. But there may be opportunity for streamlining a product design or assembly layout. Adopting a lean manufacturing system is a highly effective way to reduce manufacturing costs. Or you may discover the design of your product can be slightly modified to reduce material waste or assembly time.
3. Vendor Negotiating
Perhaps your operation is comfortable with an existing vendor relationship. But you might be overlooking more competitive alternatives. So if you would prefer to stay with a trusted supplier, ask them for a better deal. But first, collect a few apples-to-apples quotes on your exact specifications. If you find a supplier quoting the same offering for a lower price, ask your current provider to match it. Chances are they will jump at the opportunity to retain your business.
4. Contract Manufacturing
Sometimes, outsourcing your manufacturing to specialists makes more sense and can greatly reduce manufacturing costs. Some of the benefits of purchasing products from a contract manufacturer include:
- A smaller footprint, with less space required at your location
- Manufacturer shares cost of overhead with other companies
- Contract manufacturers have greater economies of scale with greater purchasing power
- Skilled labor is often more specialized and streamlined
5. Manufacturing Increase
For some larger companies, a prime method to reduce manufacturing costs is to increase production rates. While this is a well-known option, it bears repeating. Indeed, larger companies that already have the equipment and manpower to scale up can often see substantial cost reduction and increased profitability simply by running larger batches of product. However, proper research and planning should be conducted beforehand. More inventory can result in greater warehousing and transport costs if the operation is not lean enough or the demand is not there.