For any
business, waste strains profitability. Waste can come in the form of time,
resources and labor; it shows up through poor process planning, inventory
imbalance, or poor warehouse layout. Essentially, waste is any expense or
effort that does not transform raw material into a finished product. By
optimizing processes and eliminating waste, businesses can add value to each
phase of production.

One way to
improve profitability is to reduce production costs. Production costs are the
costs incurred in manufacturing a product or providing a service. These can
include expenses such as raw materials, labor, suppliers and general overhead.

Consider these six
ways to reduce production costs:

1. Track your
costs

To begin with
you need to ensure you’re tracking your costs — you can’t change what you don’t
measure. The first step is to
identify all operating costs and understand which costs have increased. Decide
the intervals for tracking key information to help you make informed decisions
about manufacturing cost reduction.

2. Eliminate
bottlenecks and redundancies

Analyze each
stage of your production process: is each activity required? Does it add value?
You should also consult the relevant employees to find out what steps in the
process are not adding value, redundant, or interrupt their workflow. Drop
non-value-adding activities to cut out unnecessary costs.

3. Tighten your
inventory control

Optimal
inventory control means you hold the right quantity of stock so you’re not
stuck with excess inventory that costs money to store, insure and can go to
waste; but neither are you caught short by stock-outs.

4. Improve
employee engagement

Engaged
employees means lower staff turnover, which in turn leads to reduced labor
costs. Engaged staff are also more effective and productive. This means you
should:

·       
Hire
the right people

·       
Provide
training

·       
Offer
appropriate incentives

·       
Share
clear production goals

5. Embrace
automation

Review your
process to see where you can use automation to boost efficiency. Simplify the
manufacturing process with automation so you can save time, make the best use
of resources, ensure consistent product quality and more. Before investing in
an automated system, make sure that it will meet your business needs and has
flexible integration capabilities.

6. Negotiate
with suppliers

Another way you
can save your manufacturing costs is to ask your suppliers to reduce their
prices. The first step in this process is to build genuine relationships with
your suppliers. Once you’ve built a rapport, negotiating money is less
uncomfortable.

Already have a
good relationship with your supplier? You’ll be better placed to negotiate for
discounted prices. Consider:

·       
Signing
a long-term contract with your top suppliers

·       
Offering
cash payment in return for discounts

·       
Asking
for a turnover discount at the end of a financial year if you’ve contributed
significantly to their business

Saving on operational costs is one of the biggest goals for manufacturing
companies. Most manufacturers look to streamline systems, reduce production
costs, and increase profitability without sacrificing product quality. Often,
the quickest and easiest way to cut costs is by accepting minimum quality
levels or reducing employees. This can lead to increased product returns,
warranty claims, and loss of a loyal client base that will probably increase
costs in the future.

Reducing
manufacturing costs is important regardless of the company size or the type of
products manufactured. Estimating the cost of production is essential to manage
cash flow and eliminate unnecessary spending. Reducing production costs results
in more available money to innovate, grow, or save for contingencies.

Businesses have
the option to lower prices and pass on their production cost savings to
customers. Lower prices can increase the demand for products, resulting in more
sales. The company can also offer staff bonuses or an increase in pay to
improve employee satisfaction levels.