Tips for Reducing the 6 Biggest Expenses in Manufacturing

One of the biggest issues that manufacturers face in today’s world is how to stay competitive in a highly competitive industry.

The key is to keep costs low so that you can pass that savings on to customers, but doing so often results in substandard materials or processes. Have you been searching for ways to reduce expenses in order to keep your price structure competitive and your company afloat? If so, let’s look at the 6 biggest expenses in manufacturing and a few thoughts on how to cut costs without impacting quality.

1. Labour

Labour represents a huge portion of your overall expenses in operating a manufacturing company. Every process requires a certain number of workers in every department of your company. From office staff to workers on the assembly lines, each of those people need to be paid a competitive wage in order to attract and keep the top talent. Some employers have sought to automate some processes so as to reduce the cost of labour. This doesn’t always put people out of jobs because they can be moved around to other positions, but it does help to reduce the number of new hires going forward.

2. Overheads

Overheads are another huge operating cost which involves everything from utilities to rents or mortgages and everything in between. For example, paper, taxes, cleaning supplies, and even employee benefits are considered as overheads. Conservation goes a long way toward keeping overheads low. Perhaps you might want to investigate going paperless within your office and in bulk postal mail. Give your customers the option for paperless billing to keep costs low and perhaps those office memos could be sent via email as opposed to printed documents.

3. Utilities

Here is another huge expense that can be easily reduced if you take the time to compare rates between providers in your area. For example, not all business gas suppliers charge the same rates and, with a quick and easy search on a comparison site like Utility Bidder, you can get bespoke switching rates from business gas suppliers. In other words, this is a tool that provides options from various providers without bias.

4. Materials

This is a tricky one. You need to keep the materials you use in manufacturing up to legal standards, and quality is always a priority. However, if you try to lower the cost of materials, you just might find that you are purchasing dangerous substandard, inferior materials. Take the time to compare materials among suppliers or distributors and always know that quality should never suffer for the cost involved. Bear in mind that competition is just as stiff for your suppliers as it is within your sector within manufacturing, so there are always ways to seek lower cost products. Wholesale orders in larger quantities might offer one of the best money-saving benefits of all. Try to make the largest order possible so that your cost per piece is significantly reduced. In a year’s time, this could yield a sizeable savings.

5. Fiscal Responsibility Through Tracking and Statistics

It’s necessary for someone in the business to be good with numbers. This means that they’re adept at looking at the financials and seeing whether there’s inefficiencies? This might be an Operations Manager or someone who works on the financial side.

Track and consider manufacturing statistics like production capacity, labour efficiencies compared to previous years/quarters or your peers, money spent on overtime, stock turnover, cash in and out of the business, and more.

Create a Key Performance Indicator report but go much deeper into manufacturing with specific information that quickly informs when something isn’t right on the production floor, within the operation, or elsewhere.

6. Examine Costs Associated with Inventory

Sitting on products that have been produced but as yet are unsold or not dispatched is costly.

Storage space that could be better utilised, the risk of theft/shrinkage, insurance on inventory, the risk of inventory becoming stale the longer its stocked, and the opportunity for the cost of funds in inventory being tied up are all relative costs associated with it.

If it’s yet to be utilised, consider just in time production methodologies. It can be started on just a handful of production lines initially and then extended out as it proves itself. The idea is to substantially reduce the time from completed production to dispatch which limits the amount of inventory held and for what duration.

These are just the bare bones ideas for reducing costs in manufacturing, but each is an important consideration if you are seeking to reduce costs in order to raise profits. Take the time to search and compare and you just might be greatly rewarded with what you’ve found.