How to reduce costs in your manufacturing business
Every business owner is always looking for ways to reduce the costs of doing business. This is especially true for manufacturing companies that often times have higher overhead costs then other types of businesses. Manufacturing business owners need to be on the lookout for ways to prevent waste of money, time, and other resources. If you fail to control these costs it could ultimately end up costing you your business. Keep in mind that controlling these costs will help to make your manufacturing company not only more profitable but more efficient, as well. Here is what you need to know about how to reduce costs in your manufacturing business-
- Know the different kinds of costs-There are many different kinds of costs when it comes to manufacturing. Successful manufacturing business owners will know what these costs are and how to deal with them and keep them as low as possible. Basically all costs inside a manufacturing business break down into one of the following four categories-
1. Manufacturing overhead-These are costs that are directly related to the production process.
2. Administrative overhead-These are costs that are related to the office and "paperwork" side of the manufacturing business.
3. Selling overhead-These are costs that are related to any expenses that are incurred while selling the product. This can include but is not limited to: marketing, wages for sales people, and advertising.
4. Distribution overhead-These are costs that are related to any type of distribution that is done with the product. This includes: any warehousing, transportation, or shipping costs.
It is important to understand that while all of these categories are typically found inside every manufacturing business the amount that each manufacturer incurs will depend on the type of product they produce and how it is sold.
- Look at the small costs-Many times' business owners of every type take a close look at the biggest expenses in their business and then move on. However, within all of the four categories that are listed above there will be smaller costs that if they are out of control could be damaging your manufacturing business. You should take the time to look at all costs and determine if they are in line with what you should be spending and what you can afford to spend.
- Get your employees involved in controlling costs-It is important to understand that manufacturing is a highly employee driven business. Your employees will be the ones who are spending their days in direct contact with the product that you manufacture. Because of this they have a great deal of control as to how much money you will be spending. It is crucial to get your employees involved in helping you to reduce costs. Many manufacturing businesses have formed committees with employees from all levels of the business in order to identify where costs are out of control and come up with a plan on how to reduce costs. This has been shown to be highly successful.
- Plan for unexpected costs-Many times costs within a business get out of control because the owner does not plan for unexpected costs. Keep in mind that there will always be costs that come up that you didn't plan on. If you don't have a plan as to how you are going to pay for them you will end up spending to much, leveraging yourself and your business, and generally mismanaging your business finances. You should take the time to carefully consider in your cost reduction strategy how to have the resources to pay for costs that may come up without warning. Have a cash reserve for those unexpected costs is crucial for the long term financial health of your manufacturing business.