According to Deloitte's 2018 Global Chief Procurement Officer study, about 80% of chief procurement officers cite cost reduction as a strong business priority. It is one approach that manufacturing startup owners will resonate with. There are many reasons to try and save more. Whatever the reason or situation propelling you to save more, you need to do it well. You don't want to make rash decisions like laying off your experienced employees, only to make your situation worse. Here are some tips on how best to save manufacturing costs as a startup.
Adopt lean manufacturing techniques
The Lean Enterprise Research Center research revealed that 60% of production activities in a typical smart manufacturing operation are a waste. This means that these processes add zero value to the customer or the end goal of the manufacturing process. Well, start cutting back on costs and saving on production processes. You ought to identify these waste processes and eliminate them. Some good examples are waiting, inventory, transportation, motion, over-processing, and over-production. Adopting lean manufacturing will help you in determining what processes to eliminate.
Note: The goal here should be to use fewer resources to make the most output. Be careful to avoid hurting quality.
Collaborate with manufacturing partners
Working together with other autonomous manufacturers will save you money and time and improve your operations. For example, you can engage in horizontal collaboration with other manufacturers at the same stage of the supply chain to share the burden of demand and optimize costs. You can share the cost of the delivery infrastructure of the raw materials you use to produce various commodities. This cost-sharing will help you reduce costs and increase production. You are bound to increase your profit margins.
Don’t do everything or try to reinvent the wheel. If you need parts like washers, shims & spacers, Actuator Springs and the likes. Why not find a partner to do photo etching on metal for your electrical or mechanical systems? Partnerships are also a great way of ensuring a seamless process when it comes to the production and distribution of goods.
The benefits that you can accrue as a manufacturer through collaboration include:
- Supply chain talent and partner retention
- Lowered long-term production costs
- Improved product quality and safety; and
- Better ethical standards through multi-stakeholder manufacturing collaboration.
Adopt build-to-order manufacturing
Most manufacturers waste resources in producing goods without a sure market. This means that labor costs, power, raw materials, time, and other resources are fully utilized without a surety of where exactly to sell the goods. At the end of the day, this increases the overhead manufacturing costs and the time it takes to earn profits from the investment.
To cut overhead costs, you should seek to produce standard products that can be built-to-order to order without forecasts or inventory. Aim at producing special products through mass customization on-demand.
In this paradigm, you will only build products after orders have been confirmed, meaning there will be less wastage. Your inventory carrying charges will be eliminated, and the procurement costs can be reduced with automatic, on-demand resupply.
Minimize energy expenditure
There is no doubt that energy costs are significant expenses to you as a manufacturer. You will need the energy to keep production moving in processes as heating, cooling, and lighting, among others.
Scaling back your energy expenses can improve your bottom line and lead to increased profitability. You could start by conducting an energy audit to identify opportunities for improvement in energy efficiency. This can be done by inspecting your lighting systems and production line equipment to determine energy consumption. Besides, you can do the following to ensure that you cut back on the energy expenses:
- Evaluate compressed air systems for leaks: reports indicate that 20 to 30% loss of compressor’s output is due to leaks. Undertaking an air leak survey will help you determine if you have leaks in your system. You can then correct them immediately to avoid further wastage of energy.
- Upgrade your production equipment: this is a solution for long-term energy saving—plan on replacing the outdated or inefficient equipment to reduce energy wastage.
- Install energy-efficient lighting: your manufacturing facilities need to be well-lit. Hence, you should install energy-efficient lighting solutions in your manufacturing facilities. Additionally, you can turn off or remove lights in non-essential areas to save on power costs.
Tip: You can also invest in solar solutions to help cut energy costs.
Rationalize the product line
The rationalization of the product line and its components are crucial in saving manufacturing costs. Here, you get to focus on producing the most profitable products. It also involves eliminating or outsourcing low-profit products with high overhead demands and are not compatible with manufacturing cost reduction strategies. Experience first-time product line rationalization efforts reveal that 60% of a product line contributes less than 10% of the total margin. Besides, research shows that successful rationalization initiatives have cut total supply chain management costs up to 50%.
Additionally, it has improved performance on inventory turns up to 100%. This is definitely something you would like to see happening in your manufacturing plant. The good news is that it has been done before, and you can certainly cut back on expenses and add profits.
Evaluate the cost of quality
Reducing the quality cost is a crucial step in the reduction of manufacturing costs. By regularly assessing and improving upon the manufacturing process, you can reduce the cost of quality by 15% to 40% of total revenue. As a result, you will increase your profits. The initial step to eliminating quality costs involves designing in quality. You will be assured of high quality and reliability by the design of the product. Hence, you can prevent costly errors, defect reworks, and overhead demands. Besides, designing in quality requires that you prepare and plan thoroughly. It is because you will need to simplify designs, consider past quality problems and automate processes as you document each thoroughly.
Manufacturing can be costly. The labor force, cost of raw materials, the production equipment, and energy; all that goes into the production of various items cost a fortune. If the great assessment of the cost of the process is not done, there is a high likelihood of getting a small profit margin. However, there are ways through which you can cut back on the costs without affecting the quality and increasing your profits.