One industry hit hard by the ongoing global pandemic is the manufacturing sector. IBISWorld expects the revenue of the industry to sink by 18.1 percent this year due to declining industrial activities and disruptions in the supply chain.
During these hard times, manufacturers need to find ways to stay afloat and weather the storm. One solution is to trim manufacturing expenses without sacrificing the quality and quantity of the products produced by the business.
If you’re looking to cut down manufacturing costs while improving the efficiency of your company, consider applying these four measures:
1. Do Price Negotiations with Your Suppliers
Asking your trusted or long-time suppliers is an effective way to help you save on manufacturing expenses. You could, for instance, negotiate with your chosen packaging supplier to cut the price by a certain amount or introduce a discount on every order.
You can further boost your chances of bagging the right deal by keeping these tips in mind:
- Pay your bills on time. Suppliers are unlikely to offer incentives or discounts if you’re a late payer or have outstanding balances.
- Make sure that the price reduction you’re asking for is reasonable. Remember that your business isn’t the only one affected by the coronavirus pandemic.
- Tell your supplier that you’re considering deals from other suppliers. This may push them to lower their price to get you to stay with them.
If you’ve tried everything and the supplier won’t budge, source your materials from different suppliers.
2. Track Your Key Expenses
Tracking your numbers is vital to cutting down your manufacturing costs, as you can’t shrink something that you have not yet recorded.
You don’t necessarily need to hire an accountant for this task. Non-accountants can keep tabs on their numbers by using cloud accounting platforms, such as QuickBooks. If you don’t want to purchase software, try recording the numbers on a spreadsheet program, such as Microsoft Excel.
Some key manufacturing expenses you should begin tracking are the following:
- Cash in and out
- Stock in and out
- Production capacity
- Manufacturing overhead
- Overtime costs
Once you’ve identified the costs for monitoring, instruct your manufacturing team to begin feeding the required numbers. The simple recording of expenses will give you a clue on the areas for improvement in your business.
3. Optimize the Performance of Your Workers
If you want to reduce your expenses in your manufacturing facility, lowering the remuneration of your employees is not the way to go. This can lead to employee dissatisfaction and a higher churn rate.
A wiser approach would be to optimize labor efficiency. You can accomplish this goal with these suggestions:
- Use production scheduling and tracking software to monitor employee efficiency.
- Hire efficient workers using vetted job portals, such as Monster.
- Provide incentives to manufacturing employees who complete an average unit of work below the established standard time.
- Share the production goals of your manufacturing facility.
- Motivate your labor force regularly by letting them know how much you appreciate their hard work and dedication.
- Have your labor force go through efficiency training that will teach them cost reduction techniques.
- Evaluate your existing production process and tweak it as necessary.
4. Automate Manual Processes
Technology is the tool you need to improve your manufacturing efficiency and become more competitive. Initially, you may feel hesitant about investing in automated solutions. After all, these platforms can get expensive.
Implementing these technological solutions, however, will help you save on operational expenses in the long run. An enterprise resource planning (ERP) platform, for instance, can analyze your manufacturing workflow, uncover production bottlenecks and automate complex processes.
Start reducing your manufacturing costs by applying these suggestions to your business. Bouncing back from the pandemic in 2021 won’t be easy, but you could at least improve your chances of survival when you’re able to cut expenses and enhance overall efficiency.