Production IDEAS for Small Business
Reduce manufacturing costs by reviewing labor, material and overhead expenses.
Getty Images/Lifesize/Getty Images
No matter how popular or useful your product may be, if you can’t produce it in an efficient, cost-effective manner, your business will most likely suffer. When your manufacturing efforts are not generating the profit margins you desire, there are a few key cost-reduction ideas you should consider.
Reduce Labor Costs
If physical labor is the biggest expense in manufacturing your product, controlling labor costs will give you the quickest path to increased profits. Labor cost reductions can be generated by lowering the dollars paid to factory workers or by making workers more efficient. Although low-cost labor can be obtained by employing unskilled labor, another way to decrease labor costs is to improve the efficiency of experienced labor. Study all production practices to eliminate wasted steps in the process. Reduce the time required to produce an average unit by providing specialized training that allows employees to work at a faster pace. Offer incentives to employees who can introduce labor-saving techniques into your production facility.
Reduce Material Costs
When material costs dominate product expense, focus on ways to procure materials for less money or find ways to use less material in the building process. Purchase materials in large lots to drive down unit costs. Research and determine the right type of material required; if features are not vital to the function or quality of your goods, don’t pay for them. Provide documentation, training and proper tooling to reduce the amount of material scrapped during production. Deploy lean manufacturing initiatives such aslike Six Sigma to evaluate opportunities for savings.
Reduce Overhead Costs
Monitor and control the expenses associated with running the factory – often referred to as overhead costs. Building, utility, supply, storage, handling, travel, supervisory and administrative costs all add to manufacturing costs. Set budgets for these support costs and review them on a weekly, monthly and yearly basis. Research purchase versus rental options for cost savings. Limit employee costs to those that benefit production or increase sales. Keep debt and interest expense as low as possible. Review and shop for the lowest employee benefit costs each year. Monitor tooling and supply costs, and keep them in a secure area to deter loss.
Invest in Capital
Sometimes the way to save money is to spend money. Investing in equipment that makes the manufacturing process faster can actually lower the production costs in the long run. Likewise, machinery that uses less material can also lower costs. However, it is imperative to thoroughly research potential capital investment benefits versus costs required before purchasing new equipment. Determine the return on investment by computing the gain from the investment less the cost of the investment divided by the cost of the investment.