Whether you’re navigating production issues as a startup or an industry veteran, managing manufacturing costs is always a priority.
An increase in production costs usually results in a higher price tag. Or lower profit margins. In both cases, you might fall behind your competitors. On the other hand, controlling costs lets you preserve profit margins and maintain competitive prices. Your existing customers stay loyal to the brand. Even better, their word-of-mouth publicity makes it easier to attract new customers.
This article tells you how to reduce manufacturing costs and gives you a few tips to make cost-cutting strategies more effective.
Know Your Manufacturing Costs
Before you start looking at ways to lower costs, you need to understand where you’re spending money. Manufacturing costs fall into 3 categories:
- Direct Material
This includes all the raw materials and components that go into manufacturing a product.
For example, clothing manufacturers use fabric, thread, buttons, hooks, etc.
- Direct Labour
These are the wages and benefits payable to workers directly involved in the manufacturing process.
(For example, machine operators and seamstresses)
- Overheads
These are indirect costs shared by everything made in the factory.
(For example, rent, security staff salaries, electricity and equipment maintenance.)
How to Reduce Manufacturing Costs in 5 Ways
When you see your production costs increase, the first thing to do is look at contracts. Try negotiating better rates or look for alternative suppliers. This is an effective way to lower manufacturing costs across all categories. Now, let’s explore a few other opportunities to reduce costs.
1. Standardized Work and Kaizen
Standardizing work refers to the process of finding, documenting and sharing the best way to complete a task. It tells your employees what they need to do at every step of the process and how to do it.
For example, workers putting together a circuit board should have a detailed set of instructions. This should outline the sequence of steps, tools required, specific temperature, quality checks, etc.
Having a standardized workflow ensures consistency and reduces the risk of error. This leads to fewer defective products and helps optimize raw material usage. It also reduces the risk of accidents and increases productivity.
Integrating standardized work with the Kaizen principle goes a step ahead. It uses standardized workflows as a base to find small ways to improve the process further. Let’s continue the above example. After analyzing the soldering process, you may find that adjusting the solder application technique yields better results. This now becomes the new standard.
2. Eliminating Waste
Fighting waste is one of the key tenets of Lean manufacturing. Eliminating waste helps you make the best use of your materials and reduces energy consumption. When you expand the idea to intangibles like time, eliminating waste also increases productivity.
For example, you might rearrange the machine layout on your factory floor. This cuts down on time spent transporting materials from one location to another. In turn, it reduces the wait time between processes and increases daily production capabilities.
The key to eliminating waste is to recognize waste, make it visible, measurable and define accountability. This is where Value Stream Mapping – VSM can be helpful. VSM is a pictorial depiction of the material and product flow through the production process.
It identifies non-value-adding activities and helps pinpoint processes prone to disruptions. For example, you may be spending time and effort polishing a part of the product that is not visible to customers. It also helps identify defects at each handover so you can take appropriate corrective measures.
3. Just-in-Time (JIT) Manufacturing
Just-in-time manufacturing and inventory management focuses on demand-driven production. By manufacturing only as much as required at a time, factories can reduce their inventory holding costs and improve cash flow. It also gives manufacturers more control over the process and allows them to respond faster to customer demands. If a process is flawed, JIT manufacturing limits its impact.
Accurate demand forecasting and reliable suppliers are essential for successful JIT manufacturing models. You also need to have a clear idea of your machine’s efficiency and effective traceability methods for quality control.
The Kanban system is a useful tool for JIT manufacturing. It uses visual cues to track the real-time status of a task in different columns. When inventory at a particular stage drops below a certain level, it sounds an alert requesting more stock. For example, the system may trigger an order for fabric when there is less than 20 meters available. Thus, you have real-time visibility over the production flow and do not need to hold excess inventory.
4. Automation
Would you mentally calculate 458×896 or use a calculator? A calculator is quicker and ensures you get a correct answer. Similarly, automating manual processes can make them more efficient and deliver consistent results. It isn’t surprising to note that the manufacturing automation market is expected to grow at 8.7% CAGR between 2022 and 2031.
Yes, there is an upfront cost to investing in automation. But technology pays for itself very quickly. It lowers manufacturing costs significantly while maintaining a high-quality standard. Automating repetitive tasks also lowers the risk of human error.
Upgrading the existing machinery is the simplest way to start. You can also integrate Internet of Things (IoT) devices to monitor performance, pre-empt maintenance requirements and minimize downtime. Introducing robotic systems to the production line can be a game changer for production efficiency.
5. Cross-Trained Employees
If the only person who knows how to operate a machine falls sick, your production flow may grind to a halt. The best way to avoid this is by cross-training employees. This means person A should know his own job as well as how to do person B’s job and vice versa.
Cross-training is beneficial for the business and its employees. It minimizes the risk of labour issues causing production bottlenecks and increases flexibility on the factory floor. Having a cross-trained team may also reduce your need to hire additional staff during peak production season. For the employee, this is an added skill that makes them more valuable.
IDEO is a great real-life example of cross-training. The company encourages the development of ‘T’ shaped people. The vertical stroke represents an employee’s specific expertise while the horizontal stroke reflects a working knowledge of other processes.
How to reduce Manufacturing Costs – Implementing Cost-Cutting Strategies
Maintaining low manufacturing costs without influencing product and service quality requires consistent efforts. You need to keep a close eye on the production workflow and be ready to act on every opportunity to lower costs. Digital solutions like Fabriq make this easier to do.
It allows you to identify and track metrics such as inventory levels, defect rates, production progress, etc. to spot opportunities for cost optimization. Further, access to real-time visual data makes it easier to collaborate and design effective solutions.
In short, Fabriq empowers you to design data-driven strategies to control your manufacturing costs. Want to know more about how Fabriq can help you lower manufacturing costs? Reach out for a demo.
