Manufacturing is an expensive undertaking. Due to the many direct and indirect costs that it involves, it is imperative to manage expenditures wisely. But then, how does one keep costs down in manufacturing without compromising product quality? In this expert guide, we explain the different costs that underlie the manufacturing process, as well as share tips to help manufacturers cut down on expenses.
Understanding manufacturing costs
The first step towards understanding how to save money in the manufacturing industry is to understand where your costs are coming from. Manufacturing costs refer to any costs incurred during the manufacturing process. They include both direct costs and indirect costs.
Below are some of the manufacturing costs you should be aware of:
- Labor costs
- Raw material costs
- Overhead costs
- Energy costs
- Equipment costs
- Administrative costs
- Insurance coverage costs
- Shipping costs
7 ways for manufacturers to cut down costs
Keeping costs down is essential if manufacturers want to return a profit. In order to help you better understand how to identify cost-saving avenues, we share useful favorite cost-reduction techniques below.
Audit your facility
Before you can start cutting costs, you need to have a comprehensive understanding of what your current costs are. In order to do so, you should undertake a thorough assessment of your facility. If you skip this step, you won’t be able to identify the areas where you are being inefficient with your spending.
You should carry out a full audit of all manufacturing costs throughout the production process over a set period of time. Once you have a thorough understanding of each cost you incur, you can begin to identify trends and areas where you can cut back on. For example, you can identify redundant roles, saving opportunities for overheads, or debt management approaches that could save you money.
Perform regular Gemba walks
Gemba walks are a great way to cut down on costs because they help ensure that you are running an efficient business. When your process is efficient, your employees get more done, you manufacture more products, and you increase your profit margins. Moreover, when you are directly involved on the factory floor, you can identify problems before they occur, thereby saving money in the long term.
The best way to perform Gemba walks is by using a dedicated app that allows you to assess the processes on your factory floor and seamlessly create records based on your findings. Digitizing your Gemba walks can go a long way towards fostering a culture of continuous improvement.
Negotiate with suppliers
A huge bulk of your production costs comes from the price of your materials. The best way to limit your material costs, while simultaneously producing quality products, is by negotiating with suppliers. If you have been working with a single supplier for years and have never negotiated your costs, you are missing an important opportunity.
After all, suppliers reward loyalty. By simply talking to your long-time supplier, you can reduce your expenditure on materials. Another way to improve your bargaining power when negotiating with suppliers is to offer to buy your materials in bulk. Most suppliers offer discounts if you bulk-buy their products.
Review staff wages, hours, and roles
This is the most difficult aspect of cost saving in manufacturing. That being said, reviewing the roles and wages of your staff can save you a lot of money. You must keep in mind that staff wages increase with inflation, which you need to be prepared for. You should also continually assess which of your staff positions are absolutely necessary. Once you carry out these assessments, you will likely realize that skilled workers are doing jobs that encompass many things. In other words, you don’t need a separate employee for each role.
However, you also need to be careful with making frequent changes to factory staff wages, hours, and roles. Such changes could lead to unhappy employees, which in turn could cause inefficiency and a high turnover rate. All of these will cost you money in the long run. So, while a review of staff can be helpful, you should not be overzealous with your decision-making.
Review overhead costs
Overhead costs are costs that most manufacturers tend to neglect. It is easy to push these expenses to the back of your mind, as they are indirect costs that don’t have any bearing on the manufacture of your actual product. However, they also constitute a major component of your eventual expenditure.
These expenses include rent, utilities, air conditioning, and cleaning costs. You need to assess whether you need to be functioning in such large warehouses with expensive rents, whether you require daily cleaning, whether you should install smart thermostats to better control your heating, etc. in order to better manage your overhead expenditure.
Perform predictive maintenance
Predictive maintenance is the process of utilizing data to identify possible defects in equipment. If you are able to identify these before they become a major problem, you can save significant amounts of money. Using a system of predictive maintenance helps to ensure that your equipment maintenance costs are as low as possible.
Improve inventory management
Inventory management is key to keeping costs down because material waste can end up being a major contributor to losses. If you fail to properly manage your inventory, you could end up with too much or too little stock, both of which will cause huge problems and end up costing you a lot of money.
With a solid inventory management system, you can ensure that such waste doesn’t occur. On the other hand, if you don’t have enough materials on site, you will be unable to manufacture your product. In the process, you will lose potential revenue from every unit that you were unable to make. Keeping on top of your inventory is essential if you want to keep down costs, and maximize profits.
Gemba Walk App
If you are looking for a way to not only minimize your costs, but also maximize your efficiency, the Gemba Walk app is the ultimate solution. Our Gemba Walk App is designed to make the entire lean manufacturing process easier by digitizing your Gemba walks.
Our Gemba Walk software allows you to:
Take thorough notes of issues and problems using checklists, textual notes, pictures, etc.
Reduce data collection time
Generate actionable insights and ideas
Integrate insights into your preferred task management tools