All about manufacturing overhead
If you are planning on opening a manufacturing company then it is important to understand that there are significant overhead costs that you will need to take into account. This can be difficult to figure since these types of costs do not add value to the product directly but are required for the production process to be successful. In addition, manufacturing overhead can also slow down the production process because it can take up time or other resources. However, by having a clear understanding of what manufacturing overhead is and how to control it you can improve and streamline your production process. Here is what you need to know about the manufacturing overhead-
- Identify the manufacturing overhead costs-The first step in controlling manufacturing overhead costs is to clearly identify them. You will need to take a close look at the entire production process and then determine which steps add value to the final product and what steps may be taking away value. Keep in mind that this can be difficult to determine. While you may see that producing and packing a product is adding value to it, it can also be said that the time that is spent inspecting it and doing the actual packing are taking away value. However, many times these non value added manufacturing costs are what you must do in order to keep your customers happy. There are other manufacturing overhead costs that do not add value to the product such as: taking inventory, planning and strategizing for product improvement and the time spent meeting with vendors to find ways to improve the product. Because of the high cost of these manufacturing overhead items it is crucial that the manufacturer use the highest standards of inventory control and time management.
- Control the manufacturing overhead costs-In order for your manufacturing company to be profitable you need to carefully control this type of cost. When you are able to successfully do this you will not only increase sales but increase the profitability of your manufacturing company, as well. You want to make sure that you are reducing the non value related manufacturing overhead costs as low as possible without sacrificing the quality of the product that you produce. This can often be done easily by purchasing software that will help you understand what manufacturing costs you are dealing with and provide ways that you can reduce them or even in certain cases eliminate them. Best of all, many types of manufacturing software are designed for certain industries and are based on lean manufacturing principles. If you are unsure as to what kind of manufacturing overhead software that you need there is a wealth of information available both on and offline to help guide you in the selection process.
- Monitor the manufacturing overhead costs-It is imperative that any manufacturing company that wants to be profitable put a process in place that will continually monitor manufacturing overhead costs. This is the only way to make sure that they are being controlled. Manufacturers who make a big push to reduce their manufacturing overhead and then forget to continually monitor it soon find themselves right back in the same situation. You will need to design a process that will continually be looking at all aspects of manufacturing overhead and making sure that the cost does not creep back up again. Successful manufacturing companies are built on controlling costs for the long term and not just when they seem out of hand. When the process is put in place and constant monitoring is occurring then small costs increases can be dealt with before they become a larger problem.