6 (smart) ways to cut your manufacturing costs

Image Source/Richard Lewisohn

You can’t cut your way to success. But you can make smart cuts that make your manufacturing operations smoother and more cost-effective.

You can’t cut your way to success. Too many manufacturers have tried.

It’s tempting to just whack labor. It’s a frequently used cost-“management” option, because labor is a big, visible line item on a traditional profit-and-loss statement.

But there are alternatives to such a poorly targeted approach.

With a little research and focus, you can pursue savings that will not only cut your costs but strengthen your operations for the long run. And your stakeholders will support your change in focus, because it benefits them as well.

1. Poor Design

The fact that design determines more than 85 percent of costs should tell you that it’s a target-rich opportunity. Customers, suppliers, and manufacturing personnel are all good sources for identifying problems in your design. They live with it daily. Design engineers can identify things they could do differently and better if given the time. DFX (design for manufacturing, design for service, etc.) is well-developed, as is target costing. Suppliers can help identify parts and material reduction alternatives.

2. Wasted Capacity

Inventory management and quick changeover of equipment are just two of the many ways to improve realized profit margins. One of my prior ACBJ articles described how to stop wasting capacity.

3. Strategic Failure

Long-term success requires well-conceived business and market strategies supported by well-defined operations strategy. The combination of “sell more” and “get order – make order” approaches to the future is ridiculously expensive.

4. Myopia

Conditions change. Industries change. Opportunities change. Markets change. A company that focuses only inwardly on its current buyers will struggle to spot or take advantage of these changes.

5. Inadequate Processes

Average people can succeed in good processes. It takes time, work, and dedicated people to overcome poor processes. Resources are wasted in those efforts.

6. Nonexistent Rationalization

Over time the number of parts, suppliers and products grow. Equipment is located where there was space at the time. All of these are rationalized as part of ongoing operations in successful businesses.

Work on your business, not just in it. Money is lying around waiting for you to find it.

As published on American City Business Journals