Running a manufacturing business can end up being an expensive affair if you are not careful. You need to do everything you can to keep costs low, but this can prove to be a particular challenge when you are first getting started. After all, you have the equipment to either buy or lease, staff to pay, premises, transportation – the list is endless. Unless you have an unlimited budget, you should look at ways to cut corners without risking the integrity of your business or the quality of your finished product. Ultimately, these things are what your business is going to be judged on.
Though there are plenty of ways that you can reduce production costs in a manufacturing business, we have compiled just a few of the possibilities to give you some inspiration and get the frugal part of your brain working! While you may not take all the advice, it should give you something to think about.
Track Your Expenses
Some businesses can be launched with just a laptop, so it is unlikely that expenses are going to run up massively. Sadly, this is not the case with a manufacturing business, which is why it is especially important that you keep a close eye on where your money is going, as well as analyzing each financial decision to ensure in your own mind that it is the right one. There are plenty of key expenses that are going to come up time and time again, such as direct material cost, labor cost, production capacity…the list goes on. Divide your expenses up into the different columns so you can see what is eating up your money. Of course, some areas are going to be more expensive than others, but you want to have the best possible oversight of your business finances right from day one. Accountancy software makes this job all the easier, or you could hire someone to take care of the task for you.
Drag Down Your Direct Material Expenses
In many cases, it is direct materials that make up a huge percentage of your costs. Say you are looking for sodium lignosulphonate. It is worth investigating numerous different suppliers to see what sort of price they are offering, but you obviously need to be certain of the quality of the product too. You should consider signing a long-term contract if you are happy with the service of a particular supplier. Not only does this help to drive down cost, but it is also likely to give you a sense of stability and consistency. You may be able to negotiate a good deal off the back of promising prompt and regular payments. While it is nice to have a long term contract, you should still return to it from time to time to see if you can get a better deal. Also, you may find that your direct material needs to change and adapt over the years.
Improve Your Workforce
So much of your success as a manufacturing company is based on how well your workforce does its job. Wherever possible, you should be looking for ways to increase efficiency. This starts with the hiring process, so make sure that you put in place a robust system of checking employee resumes, interviewing thoroughly, and checking skills and references. While many manufacturing businesses rely on cheaper labor from apprentices, you still need this senior workforce leading the way. Next, you need to focus on providing good training, which gets your employees working as you would like straight away. You should always be in the process of reviewing your production methods to see if there are any improvements that can be made. Also, you should focus on employee motivation and satisfaction as a way of improving loyalty. You are going to spend a lot of money if you end up having to constantly retrain new staff members coming through the door.
Utilize Automation
We are heading rapidly towards a world that is more heavily automated than ever before. In manufacturing, this can prove to be a huge boon in improving efficiency. Artificial intelligence works at a consistent rate and does not tire over time. It can also take away some of the more monotonous jobs and replace them with more creative or skilled tasks. While automation represents a significant upfront cost, it can also drive down your bills in the long run, so it is always worth keeping one eye on developments in this field as they occur.
