Manufacturing companies have different types of expenses that they need to manage in order to run operations. Production costs are considered one of the largest expenses that manufacturing businesses face. Ensuring that you are not compromising the quality of your products on your cost-cutting mission whilst also finding sustainable ways to reduce your production costs is therefore often a balancing act. In this article, we discuss the top tips for a cost-reduction strategy in the manufacturing industry that you can implement to elevate your profit margin.
Use Lean manufacturing
One of the first things you can do to save money is to apply a Lean manufacturing principle, which is all about doing more with less. Waste is one of the factors that limit production and may include the waste of resources, time, or workspace. Often this is also coupled with overlooking the skills of your employees and not taking advantage of your manufacturing tools. A financial cost is also always included in this waste.
Lean manufacturing means getting rid of this waste and instead utilising every aspect of the production process to add value and therefore not lose value by creating too much waste. To do more with less, reviewing how you source your raw materials and other production inputs is a great place to start. Lean manufacturing covers all the means of eliminating this waste and improving production whilst allowing you to use less human effort, fewer resources, less equipment, less time, and less space.
Labour Costs
The cost of labour is often another area where companies are burdened with hidden costs over time. The cost of finding and training new workers often holds hidden costs that can be exorbitant over time, so hiring a core focus of employees and keeping them happy is usually a better business tactic. A successful labour reduction strategy must balance resourcing and production overhead, but how do you reduce labour costs in manufacturing without laying off part of the workforce?
To achieve a successful labour reduction strategy, it is important to review your workforce to help you determine whether you're overpaying or even simply paying for a job not done. This can be done by balancing man-machine activities to maximize the potential of your workforce. Having versatile employees that can multitask and fill up other less-tasking roles is also very helpful, which can be done by training them accordingly. Overtime and overscheduling are two of the largest contributors to exorbitant labour costs, as many manufacturing companies have employees working at non-peak times or low production times. To avoid this, ascertain when your high and low peak times are, so that you can appropriately organize your production flow and staff shifts.
Employee Training and Safety
Another way to cut costs is to train your core focus of employees - not only to ensure efficient business operation and save money long-term, but also to reduce work errors and workplace accidents radically, decreasing the business’ potential liabilities. Periodic training will further motivate your employees and maintain their loyalty to the company.
A factor that many companies often overlook – which influences labour costs – is safety. By providing a safe work environment you improve the safety of your employees, protect your company from unforeseeable liabilities, and this way save money in the long run. Moreover, by ensuring that certain health and safety standards are implemented, you decrease the potential for work hazards and keep your workforce in good shape, further decreasing potential sick leaves or absences.
Reduction of energy usage
Every manufacturing business requires energy to function and the costs thereof can often be high if you are not careful. Cutting your energy costs can be a great way to reduce the costs of production. Different ways of reducing energy costs include using LED lights, which use little energy to run; installing smart thermostats and sensors to manage heating and cooling functions of equipment or facilities; repairing leaks in air-conditioning; investing in energy-efficient manufacturing equipment and turning off equipment when it is not being used.
Using smart technology to schedule Shut-Downs and Start-Ups is another way to save costs on energy. During off-peak season or hours, you can schedule a shutdown of the production area. Powering off machines or equipment during off-production hours or weekends will help reduce energy consumption by a large percentage
Implementing good manufacturing practices
Successful manufacturers will tell you that you need to continue to give the consumer what they want – at unwavering high levels of quality. To maintain this high standard of quality it is important to implement a respectable level of good manufacturing practices, otherwise referred to as the GMPs. The GMPs of your company not only represents a critical aspect of providing goods that are made with the best possible production practices, but also a great branding opportunity to establish your business as a producer of safe and sustainable products.
Ensuring that your company uses quality control, standardization, and good manufacturing processes is essential for both local and global companies, as these challenges will lead to a hike in the cost of production if not followed. A established standardised production process will save money in the long run as it saves time and space in the preparation and the actual production process, making processes more efficient.
Technology and Automation
Considering that automation and technology are becoming a big part of various industries these days, finding the perfect combination between human resources and technology is becoming ever more important. The use of technology, be it with robotics or artificial intelligence, has transformed manufacturing businesses into what they are today. Adapting automation for repetitive manual tasks in your production processes is therefore one of the easiest ways to reap the rewards of technology. These repetitive manual tasks may include E-Mails and push notifications, data backups and restorations, sale orders, or even invoicing. By implementing this type of automation into your manufacturing process, work is completed faster and more efficiently, whilst also ensuring a higher quality output, which will enable your company to save manufacturing costs in the long run.
Machinery is another area where money is often lost because companies tend to buy new machinery once their current machine breaks, which can become an extremely costly habit. Instead, companies should conduct routine equipment maintenance. Machinery should be regarded as an investment and not an expense, so keeping your machines in working order is vital. It is important to adopt periodical preventive and predictive maintenance processes, whereby you routinely lubricate machinery to avoid rust, replace filters, and clean your machinery regularly.
Logistics and shipping
Logistics and shipping are other cost factors that companies face when they move their products around too much, which often results in damages or high packaging and shipping costs. Minimizing the distance and time spent transporting products is therefore important when decreasing overall production costs. The solution to this problem is finding packaging and shopping solutions that are more efficient, environmentally friendly, and cost friendly.
Additionally, using in-house services is advisable when saving costs instead of outsourcing deliveries. Building long-lasting relationships with suppliers and freight companies may also be beneficial in this regard. By negotiating on rates and building mutual respect between your company and suppliers and freight couriers,
Lastly, a common practice is to send off excess material to landfills, but why do this when the company can make a profit from those scrap materials instead? Selling scrap materials such as metals, batteries, and electronics, to vendors is a useful approach to making a profit and ensuring that your company is green and eco-friendly.