5 Effective Ways to Reduce Your Manufacturing Costs

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5 Effective Ways to Reduce Your Manufacturing Costs Source: ankaa-pmo.com

As a manufacturer, you certainly hope to be able to reduce your manufacturing costs without having to lessen the quantity and quality of your products. However, you should not be reckless while choosing cost-saving ideas, because they may ruin your business instead of grow it. We have put together five ways you can apply to trim your expenses while improving your business efficiency.

1. Cut Your Material Costs

The simplest way you can implement to save your manufacturing costs is to cut the material costs. This can be done by tweaking the design of your products and utilizing all the resources that you have. You may have chosen product components without fully understanding the cost implications.

Opt for a simpler design and cost-saving raw materials. Try not to dispose of leftover cardboard, paper and metal. Instead of sending them to a recycling center, think of ways to sell them all back or reuse them to create another product.

2. Gain Control of Your Inventory & Purchases

The longer you keep your stocks, the more costs you need. Therefore, it is important to know exactly when to resupply and make sure that you’re not getting stuck with excess or obsolete inventory. Inventory shortages lead to backorders which require you to add extra shipping costs and even worse, they can lead to unsatisfied consumers. Meanwhile, overstocking can cause decay or contamination (especially if you store perishable food items) and certainly requires more costs such as maintenance or insurance costs.

Investing in an inventory management system or purchasing management system will greatly assist you in saving on manufacturing costs. The former helps you automate your inventory tracking, hence allowing you to maintain your stock levels so easily. The latter helps you manage purchases and procurements more efficiently, thus enabling you to easily communicate with suppliers, create purchase orders, purchase requests and requests for quotations, as well as blanket orders so you can repeatedly order items in bulk over a period of time.

3. Optimize Your Employee Performance

Manufacturing employees must be able to work fast to keep pace with growing consumer expectations. As a business owner, it is a must for you to be able to train your employees so that they can improve their skills and productivity on the production floor. Having qualified employees can help you minimize the turnover which leads to significant labor cost reduction.

4. Automate Your Manual Processes

In the midst of intense competition between manufacturers, you should be able to use technology to improve your manufacturing efficiency and productivity. You may be a little hesitant since the use of technology such as automated solutions requires substantial investment costs. However, implementing an automated solution will actually help you save your operational costs in the long run.

An ERP solution helps you analyze your workflow, identify bottlenecks in production and automate all the complex processes. From inventory monitoring, employee management, purchasing and procurement controls to budgeting, all can be handled automatically by the system.

5. Negotiate with Your Suppliers

Another way you can apply to save your manufacturing costs is to ask your suppliers to reduce their prices. Before attempting any negotiation, make sure that you have always paid your bills on time (so there will be no hard feelings between you and your suppliers). Also, ask for reasonable price reduction.

To increase your chances of getting the right deal, try to offer larger deposits to your suppliers. Let them know that you are considering some other good deals as well. If they’re not willing to give you lower prices, then you should consider sourcing from different suppliers.

Also read: 6 Main Benefits of ERP Softwares for Manufacturing Industry

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