Effective Ways of Reducing the Cost of Manufacturing
Global economy is going through a churn with increased inflation and volatility in fuel prices. The manufacturing sector is facing several challenges such as high material cost, high logistics cost, supply chain disruptions due to contingencies, business uncertainties, etc. Hence, reducing the cost of manufacturing has become a top priority for this sector.
What is Cost of Manufacturing?
Manufacturing cost is the total cost incurred during the process of manufacturing a product which includes the following components:
Direct material cost: Cost of the raw material that is used in manufacturing a product.
Direct labour cost: Cost of labour directly involved in the manufacturing process. For e.g., assembly line workers.
Manufacturing overheads: Includes indirect labour costs such as supervisors and material handling team who are not directly involved in production. Also includes indirect materials cost such as water, lubricants, etc., that are not used as raw materials. Other costs are rent, insurance, electricity, equipment depreciation, freight and transportation.
Why Should Companies Reduce the Cost of Manufacturing?
Reducing cost of manufacturing is very important as it has the following implications:
Competitive Pricing: A significant portion of the expenses incurred in production is the cost of manufacturing. Higher cost of manufacturing leads to higher product pricing. Reducing the cost of manufacturing will help in providing competitive pricing, especially when your company sells a price sensitive product.
Increased Profits: Lowering of your manufacturing cost will increase your profitability.
Improved Sustainability: Reduction of manufacturing costs often calls for streamlining the manufacturing process, incorporating recycling practices and minimising waste. Thus improving sustainability in production.
Ways to Reduce the Cost of Manufacturing
· Evaluate and Improve the Manufacturing Process
- Evaluate your manufacturing process periodically to find our wastage in terms time, raw materials and other resources.
- Make necessary improvements in those process to reduce the manufacturing costs.
For e.g., in the automobile and electronics manufacturing sector, take the help of highly skilled product engineers to identify the waste-producing steps. It will reduce the amount of raw materials needed for these particular steps. This will in turn reduce the overall manufacturing cost. Also, upgrading to equipment that could produce better products at a lower energy cost and raw material input can be considered.
· Consider Lean Manufacturing
Lean manufacturing involves measures to reduce waste during the manufacturing process to an absolute minimum.
One of the ways to achieve this in the manufacturing sectors such as textiles and pharma is to analyse if the waste and by-products of manufacturing can be reused in making new products. This requires innovative thinking and making use of reverse logistics. (a type of supply chain management which entails moving of goods from the customers back to the sellers or manufacturers for the final disposal of the product, including recycling and refurbishing). Companies can reclaim the functional parts to use either in manufacturing current products or when developing new products.
· Survey different suppliers and negotiate prices
Manufacturing industries such as the pharma, electronics and textile sectors will benefit immensely if they are able to procure raw material at a reduced cost. Negotiate long-term contracts with the existing suppliers for price reduction or look for other suppliers providing raw materials at a lower price. But, they must also ensure that there is no compromise on the quality. And ensure that the raw materials meet the demands of production, both in terms of quality and quantity.
· Reduce Overhead Costs
Companies can accomplish manufacturing cost cutting by cutting down overhead costs that include utilities, office supplies, insurance and maintenance costs. Invest in energy-efficient technologies and equipment to reduce utility bills. Have a clear budget for overheads and explore different cost-saving options.
· Go for Outsourcing
Outsourcing has become a very feasible option nowadays as there are many manufacturers. They can offer their surplus manufacturing capacities to manufacturing partners seeking these excess capacities for manufacturing their products. This will substantially reduce the manufacturing costs as not investing in CapEx will save a lot of money.
Look out for firms that have lower labour costs, access to better manufacturing technology and can comply with your business’s quality standards. These firms can either be local or international. Digital platforms like Capximize provide Information with respect to such firms.
· Use Third-Party Manufacturing
In Third Party Manufacturing process, an enterprise uses another company to manufacture its products under its own brand name. This is a very common practice in pharmaceutical industries. It reduces the cost of production and the lead time and therefore is a very suitable option for upcoming companies who are in their developmental stage and find it difficult to invest in capital expenditure.
Advantages of third-party manufacturing
- Companies can invest time in core business activities such as marketing, quality control, design and development, etc.
- The third- party manufacturers may have better experience and expertise and also a well-connected manufacturing ecosystem that may help the hiring company in reducing manufacturing costs.
- Some manufacturers may not only produce goods but also offer other value-added services such as transport and distribution, which may work at a lower cost than arranging your own logistics.
How To Find Information on Third-Party Manufacturers?
An innovative technology platform like Capximize can provide access to Information on third-party manufacturers. Capximize platform provides up-to-date information on surplus manufacturing capacities available globally. It helps companies seeking manufacturing capacities to connect with third-party manufacturers or other manufacturers through its algorithm-based recommender system.
This digital platform provides information on pan-India manufacturing capacities. Helps in conservation of capital and saving lead time by offering information on ready-to-use facilities. All of which will subsequently lead to reduction in manufacturing costs.
Register your company on Capximize Platform(https://capximize.com/) and experience the benefits that you will be reaping for making this wise decision.