“How to keep production costs down?” is one of the most common issues manufacturers face. Calculating and understanding the costs across your manufacturing operations is critical to understanding your business’s overall financial health, especially in the aftermath of the Covid-19 pandemic.
The unexpected upheaval brought by the COVID-19 pandemic has created various energy, material, or shipping cost pressures, which have contributed to global inflation and supply chain disruptions. The world is now business as usual after the pandemic, but the long-term impact may remain for some time.
In 2022, the National Association of Manufacturers conducted a survey of “the primary current business challenges.” A staggering 65.7% of respondents cited supply chain challenges, while 60.7% said they were concerned about increased raw material costs.
As a result of these challenges and the tightening of budgets in an uncertain economy, here are 5 tips to reduce production costs to stay resilient and fortify supply chains amid rising prices.
1. Examine existing costs
The starting point for any company trying to cut production costs is understanding where their money is going — and there is a lot more to calculating production costs than meets the eye. Self-audits enable companies to dive deep into every manufacturing process. They should include indirect, administrative, and other overhead costs. Furthermore, all areas indirectly related to producing a finished product should be examined for fixed and variable costs.
Companies should keep the following points in mind to keep track of their manufacturing costs:
- Material costs: the total material costs can include some components that can be either directly or indirectly traced to the manufacturing process of a specific product.
- Labor costs: direct and indirect costs including the funds to pay wages, income taxes, etc. should be examined.
- Overhead costs: include other factors that inflate the total production cost, for example, equipment operation costs, maintenance, and security fees.
2. Negotiate with suppliers
Having good relationships with suppliers can bring benefits to your project. If you have built strong relationships with existing suppliers, there may be some room for negotiation. Suppliers may be willing to cut costs in exchange for ordering specific quantities or extending a contract. Moreover, regular communication with suppliers can help figure out and mitigate potential risks and avoid wasting unreasonable costs.
3. Look for cheaper suppliers
Is it possible to find cheaper materials without sacrificing quality? Switching to cheaper materials is a great way to lower production costs, but it is important to ensure new suppliers offer the same (or higher) quality materials. Conducting factory audits verifies that your suppliers’ manufacturing material, as well as facilities, are suitable to produce your product and determines whether the supplier’s quality management is effective.
4. Decrease waste
Production waste is the “leftover” remnants of raw materials that are not necessary for the final product. Although production lines may not produce a large volume of waste, the totals add up to almost $8 trillion annually.
A reduction in manufacturing waste is beneficial to individual businesses as well as the global economy and environment. The elimination of waste in operations and production will result in reduced costs, fewer overtime hours, and better-quality products for manufacturers. Meanwhile, carbon footprints and pollution will be reduced, resulting in a cleaner environment. Material waste is often caused by inefficient processes or human errors which can impact the time taken to conduct quality control procedures.
Is it possible to make use of waste and leftover material? Materials can be fed back into the production line to create value from leftover materials. Alternatively, the waste material can be sold to other parties that have a use for it, helping businesses to recoup some of the fees put into acquiring the materials.
5. Find an expert
Working with a supply chain expert can help to reduce production costs. These experts analyze existing production costs and highlight ways to reallocate funds and save money. As experts are external to your organization, they can spot cost-saving opportunities more easily.
Lone Star is here to help!
Lone Star assesses a company’s current costs and goals, and utilizes your established business ecosystem to seek cost-saving methods. Our professional and knowledgeable team supports all stages of production and finds ways to reduce waste materials, negotiate with multiple suppliers, and cut materials costs — without you having to step foot on a factory floor. If you’ve thought about manufacturing in Taiwan or China, it’s time to contact us now. Choose Lone Star, and do not leave anything to chance.
Check out the previous post about 5 types of factory audits to learn more.
Check out our previous posts to learn more about What Issues do Companies Face When Manufacturing Goods in China or Taiwan? and How Lone Star Can Help You Outsource Production to Taiwan
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