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Keeping Manufacturing Costs Down

By: Darin Pike - IndustrySearch Writer
19 November, 2014

Global competition in the manufacturing sector creates pressure to keep production costs low and productivity high. This is a difficult balance, particularly when it comes to payroll expenses.

There are numerous ways to control manufacturing costs without adversely impacting quality.  Methodologies will vary based on what is being produced and at what volume, the offset of raw materials and manufactured supplies, along with the mix of payroll costs.

Raw materials expenses

While quality measures need to be considered, buying cheaper raw materials and parts is generally the first place to control expenses. Working with current vendors and new distributors could isolate lower cost items that will provide similar quality and results.

Be sure to review price sheets with vendors. Aside from finding a different mix of products, this may also lead to per-unit savings from placing larger orders.

Controlling labour costs

Employee expenses can be a significant percentage of manufacturing costs. Controlling this line item is a tricky proposition; workers don't look favourably on wage reductions, but happy employees tend to produce higher quality product. There are ways to reign in payroll expenses without hindering morale.

Some production lines are amenable to robotics, while others can reduce or eliminate overtime to help control costs. Shrinking administrative overhead can also be effective, but will typically lead to employees needing to handle some issues on their own (insurance concerns, payroll questions, vacation balance etc). An absence management program can also help limit the empty expense of unplanned employee absences.

Invest in new technology

While it seems counterintuitive to save money by spending money, an outdated production floor could be slowly sucking profits. Equipment upgrades can lead to increased productivity, less downtime from equipment failure, improved safety and reduced workers' compensation costs.

Green energy solutions with climate control and lighting can also help control costs. Many plants are being retrofit with modern lighting options; LED and compact fluorescent bulbs can produce similar light levels at a significantly reduced cost compared to traditional bulbs.

Design review

Much of the cost of the end product is determined by the original engineering and product design. Taking another run at the production line and mechanics could lead to an improved design that will maintain quality while saving costs.

Product quality

Machine upgrades also assist with improved product quality. While this is an obvious boon for sales purposes, it also helps with limiting expenses for warranty claims. Other quality-control measures can also be implemented, such as inspectors and testers at various stages of production. Providing fewer 'free' products will have a significant impact on the bottom line.

A little creativity can go a long way. Don't forget to bring production employees into the discussion, as they witness any inefficiencies first hand.  Be sure to offer financial incentives for any incorporated cost-saving measures and most plants will find some areas to keep manufacturing costs down.

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