Throughout the United States, there are more than 30 million small businesses. If you’re a part of one of them, you may be familiar with a common issue: high manufacturing costs.
No matter the product your company makes, you have to deal with the costs of creating your product. And many times these costs are higher than you’d like them to be.
That’s why we’ve created this article outlining three helpful tips to streamline your manufacturing costs, so they’re less of a burden on your bottom line. Keep reading for more information.
1. Utilize Build-to-Order and Mass-Customized Inventory
One fundamental way to reduce your manufacturing costs is to produce two types of products. The first is built-to-order. The second is a mass-customized inventory.
This way, you can fulfill the demand for both regular and custom orders while still reducing manufacturing costs. In both approaches, once you get an order, you’ll be able to fulfill it right away.
Using this approach can help you eliminate carrying costs, ranging from up to 25 percent of your inventory value on hand. You can also reduce your procurement costs using these methods, which can significantly help your profit margin.
2. Focus on the Most Profitable Products
Next, let’s talk about another one of the most helpful tips for streamlining manufacturing your costs: focusing on your most profitable products. This is a great way to reduce manufacturing costs, but also can help with:
- simplifying operations
- improving productivity
- increasing profit
- expanding cash flow
And what business owner wouldn’t like those benefits?
Here’s how it works. Look at your product lineup, and eliminate your lowest-profit products. Also, look for products for which you could outsource production. And then look at your highest-profit products, and make a plan to focus on these.
Commonly, 60 percent of a product line contributes less than 10 percent of the total margin. That’s why going through the product line rationalization efforts can have a significant effect on your bottom line.
3. Evaluate the Cost vs. Benefit of Quality
As any manufacturer knows, quality cost reduction is a crucial part of managing costs. This is the process of assessing and adjusting the manufacturing process.
The idea here is that you can use cheaper materials to create the same product quality, instantly improving your bottom line. But the risk is that more inexpensive materials have the potential to decrease the quality of your finished product.
It’s important to consider past quality issues as you’re going through this process. This will help you avoid problems that you’ve encountered before.
Helpful Tips for Streamlining Manufacturing Costs
There you have it: three of our top helpful tips for reducing manufacturing costs for your business. Now that you’ve read through these ideas, it’s time to make a specific plan for your company based on your unique situation.
Have additional questions or want to learn more? Contact our team today with any other inquiries.