Rising costs is one of the greatest threats to businesses today. While you may be busy holding meetings to strategise on how to increase sales and profitability, it is important to give cost cutting the same attention. Here are five steps you can take to reduce the operation expense in your manufacturing enterprise.
1. Audit your processes
You cannot save on costs if you have no idea about what is costing more than it should. Cost centres should be well defined, and unit costs determined for each process or item. It calls for proper cost accounting techniques. Automated accounting software can make this process easier and more accurate. However, you must endeavour to build a strong accounting department. Periodic audits will reveal areas that are not cost-efficient. You can then strategise based on that information.
2. Audit your labour force
While skilled workforce can easily be an organisation’s most valuable asset, it is the highest cost element in most entities. Calculating ROI on labour is a significant undertaking that can reveal just how valuable the employees directly attached to a particular project are. Labour costs can be reduced by increasing the efficiency of workers, eliminating redundancy, and embracing innovation, among other things.
3. Contract manufacturing
Contract manufacturing is a situation wherein an entity outsources another to do manufacturing on its behalf. While such an arrangement may not be appropriate in all cases, it can be a significant cost-cutting measure. The reason is that the contracted manufacturer will likely have core competencies that the outsourcing company does not have, such as metal manufacturing, for example. The company may also have highly skilled labour, efficient manufacturing processes or a stable relationship with suppliers which may lead to lower overall costs. Another important thing with outsourced manufacturing is that your company does not have to invest in the acquisition of machinery necessary for production.
4. Manage your energy consumption
In most commercial enterprises, power is a costly overhead. However, it is a cost that can be reduced by eliminating wastage. Begin with a power consumption audit to reveal where you can save on energy. Installing energy-efficient lights, operating machines at moderate speeds, and replacing inefficient equipment are some measures you can implement to reduce power bills. The most important step, however, is to let everyone know that reducing wastage is as much his or her responsibility as yours.
5. Build lasting relationships with suppliers and other stakeholders
Identify suppliers who give you good services at a reasonable price and retain them instead of constantly trying to look for new ones. They are likely to give you competitive rates to keep their business. You may also benefit from friendly terms such as longer repayment periods or discounts.
Any enterprise can benefit from cost-saving techniques. Even though this list is not exhaustive, if you implement the measures discussed, you will be surely gain significant cost reductions.