Manufacturing costs are regarded as the main mode of expenses in mass merchandise manufacturing companies; acknowledging the ways of effectively shrinking the manufacturing costs is, therefore, valuable knowledge. Manufacturing costs refers to the direct and indirect labour cost, material cost, equipment cost and all other costs related in converting- manually or automatically – raw materials into finished goods. In other words, they are the costs that are strictly invested in manufacturing products of the company. In this 5-minute guide, we have presented ten noteworthy practices that could be followed by a manufacturing firm to move forward with a cost-efficient budget allocation for their manufacturing expenses and reap the best productivity outputs conveniently.
Top 10 effective ways to reduce manufacturing costs
The prime costs incurred directly for producing goods (direct material costs and direct labour costs) and other conversion costs (Factory overhead costs) are the main expenses that a manufacturing company must firmly reduce. This reduction must happen without hindering the time, quality and delivery of the products. Without further ado, let us peruse how these costs are minimised.
1. Negotiating with Suppliers
Negotiating skills of your manufacturing company must be cutting-edge to gain the advantage of pitching the right demands for a lower cost and acquiring the best materials for your factory. Researching and learning the current demand rates, the prices per material and the other expenses such as freight costs, transportation costs and more, must be carefully decided to make sure you are shaking hands on the most advantageous deals. The tone of talking, the members who inherit the best bargaining skills and brilliant tactics applied to different suppliers must be carefully planned and launched to diminish the prime costs of materials. You must negotiate with multiple authentic suppliers to gain better chances of agreeing to terms.
2. Gain Control of Your Inventory and Purchases
Using FinTech and other digital systems to control the inventories in the warehouse and the purchases in real-time are of utmost importance. The efficiency of knowing the shelf lives of your products and being alerted when the raw material stocks are declining is too crucial to many manufacturing firms. Technologies such as the WMS, MES, production line tracking software, predictive technologies, procurement management systems and others, can be used to make sure all the required materials are stocked in the factory to complete the jobs sooner without any hindrance. Overstocking and understocking must both be mitigated by such technologies to help the investors of the company to invest only on the right number of materials. The warehouse space allocated for your inventory must also be managed the same way, to make sure that all the customers get quality products on-demand at the right time.
3. Review and redesign products and processes
Studying your products and revamping the compositions, mixtures, and the structures of your products are very important. You can realign your processes to make sure that the materials used are saved, or scraps of materials are being put to use for other factory purposes. This is a very strategic but challenging way to reduce your material costs. It is important to search for ways to use fewer materials to produce your units without having a detrimental effect on your product or any other related process whatsoever. Mass production companies can research and develop a single product and redesign the production processes to reduce material costs in greater values.
4. Packaging costs
Disregarded by many manufacturing firms, the packaging sector can be mitigated to reduce manufacturing costs. Removing excess packaging materials will bring down costs since the trending packaging methods are mostly minimalistic and eco-friendly. This is an excellent opportunity for manufacturing firms to find cost-efficient packaging that will deliver their products safely and freshly for their customers.
5. Optimising Labour performances
Advancing the skills and expertise of your factory employees through the right training courses, inspiration and skilled trainers, you are in for a big boost in productivity. The latency time in your factory will diminish because qualified employees are always reducing the company time and money through satisfactory performances. This might sound like a paradox because generally, the face value depicts that skilled employees demand higher pay rates, but logically, it is not the case. Unskilled workers make expensive errors and might harm the customer relationships that your company works hard to build. Therefore, even if you pay more for a trained employee, you are cutting down many other costs in the long run.
6. Evade Over-scheduling
Process scheduling must be precise and relatable at every point. Scheduling staff for work shifts is always miscalculated or over-scheduled by managers in companies. This leads to higher latency rates and more budget wastages throughout the production process. Adopting a proper MES will allow you to use the ‘Process Scheduling’ module to overcome this disadvantage. Process scheduling is a digital tool that will enable decision-makers to avoid over-scheduling or under-scheduling staff members concerning their talents, speed of job completion and time saved. This way, you only have to invest in the right number of employees who will work optimally in their jobs within the predetermined time limits.
7. Adopting technological tools
Another way to reduce labour costs is by providing your unskilled labour (with lower wages) technologically advanced tools. The production lines will be mitigated through streamlining productivity to reach higher rates. Paper-heavy tasks take time- and ‘Time is Money’ in manufacturing companies. To gain the advantage of reducing costs, the managers must make sure the workers retain; when they are facilitated with technologies and are happy with their salaries and working conditions, they do like to retain in the business. The workers can use various SaaS to complete tasks in different points of the conveyor belts starting from raw materials assembling to packing finished goods.
8. Manual processes transformation
Automating all your factory operations is now indispensable; this is because many rival companies of your business are already adopting digital solutions to aim for being the order winners in the market. There are many whys and wherefores as to the necessity for your firm to transform your manual manufacturing processes with technology. Firstly, it roots out human errors. Human errors are inevitable; any labour force will be prone to making errors when doing their job manually. But, with software and technological devices, the labourers would like to work in the company while it elevates the company’s brand for using technology for production. Secondly, it saves energy and mitigates the investment allocated for more human resources. The company can use technology to complete jobs faster in lesser costlier and better ways. Thirdly, the company can connect the missing dots effortlessly. The managers can understand the real-time stance of the factory’s overall production, or scale it down to understand the productivity rate of a single batch using a few tweaks and taps. Also, in specific repetitive tasks or menial production processes, the manufacturing firms can replace teams with robotic technologies and other digital solutions to save time, space and money.
Therefore, finding more comfortable and cost-effective ways to mitigate costs is significant. For example, Toyota- one of the globally recognised automotive manufacturers- use Lean Manufacturing to streamline the production lines. Their story of reducing their manufacturing costs are briefly explained here.
9. Rent mitigation
It is essential to realise that the rent paid for the premises must be carefully controlled and reviewed to make sure that you are in the right place for an affordable price. This cost is a major expense to any manufacturing firm. Nonetheless, regular reviewing of the rent expenses can help you understand whether you can afford multiple sites or whether replacing your factories on better sites can facilitate your company’s operations.
10. Budget for maintenance
By proactively examining the current conditions of inhouse machinery, the factory owners can learn how they can lean on their machine performances without any hesitation. Technologies, like asset maintenance models empowered by IoT, can be used to understand the remaining life cycles of factory machinery and allocate budgets to make wise expenses. Such costs can either be: purchasing of equipment for replacement in the right time or hiring service crews to repair and heighten the condition of the existing equipment without suffering from expensive downtimes.
Conclusion
Reducing manufacturing costs is vital regardless of the scale of the manufacturing companies. It not only increases the ROI and reduces unnecessary costs; it also promotes the innovative and creative thinking of the teams in the companies; this directly affects the trust that is put into companies by their customers. We hope you understand how manufacturing costs can be levelled down in various mannerisms, especially by equipping latest technologies. Because a manufacturing company in the digital age always has the best cost mitigating methods.
