Calculate your cost savings
TACNA 619.661.1261

Among the top considerations for successful manufacturing companies is ways to reduce manufacturing costs. Especially in uncertain times and highly competitive industries, the question becomes all the more pertinent. 

Where can you cut costs without sacrificing quality? How can you eliminate unnecessary expenditures? Where are the opportunities for reducing the price to manufacture your products? 

Three Primary Cost Sources

The key to answering this question revolves around identifying the three basic areas of expense: direct labor costs, materials costs, and overhead costs. You will find the best ways to reduce manufacturing costs by examining these three general areas of expense and analyzing them for specific cost-cutting opportunities.

  • Direct labor costs of course include wage spend. But that’s not all. In addition, this category can also include spending for health coverage, profit sharing, retirement fund contributions, travel expenses, paid time off, etc. 
  • Materials costs are the cost of any materials directly related to the manufacturing process. This is not limited to raw materials that go into production. It can also include packaging, fuel and energy, etc.
  • Overhead is a broad category that should be thoroughly investigated for cost-cutting options. This category can include site maintenance, equipment repair, warehousing, site construction or lease costs, uniforms, vehicles, utilities, insurance, etc.

With this in mind, we find the following seven options within these three areas are most effective at boosting productivity without lowering quality standards.

  1. Start with an Audit

Begin with a plan and quality intel. Conduct a full audit of your entire production process, focusing on direct labor, materials, and overhead. Track these costs for a time, and then identify key areas for improvement or change. Broadly assess the situation, and then hone in on specific ways to reduce manufacturing costs throughout your process.

  1. Examine Staff Hours

Of course, the most obvious place to look for ways to reduce labor costs is in hours worked. But it’s also one of the best. Hours worked is a substantial portion of overall production costs. And it is often the case that employees are working more hours than needed. 

Ask if your employees are working too many shifts. Can tasks be streamlined to reduce the number of shifts each employee works? Or can some tasks be combined to reduce the number of overall shifts needed. 

  1. Optimize Workforce Productivity

Get involved with your workers and really connect with them. What motivates them as individuals? What increases team productivity and process efficiency? Increasing productivity among manufacturing staff is a surprisingly effective way to reduce manufacturing costs by doing more for less. 

  • Provide the right tools
  • Improve the manufacturing environment
  • Reduce time wastes
  • Ensure effective communication
  • Invest in workplace culture and morale
  1. Reduce Materials Costs with Better Product Design

If approximately 80% of product cost is determined by the design, and the concept alone determines 60%, it stands to reason that designing with savings in mind is critical. To reduce materials costs, take them into consideration during the design phase for each product. 

Ask your vendors and suppliers or input. One of the key benefits of working with a shelter service is the vibrant supplier relationships they have already in place. Working in cooperation with the people who supply your materials at the design level is an often overlooked but very effective way to reduce waste and ensure cost efficiency in production.

  1. Negotiate with Vendors and Manufacturers

If you are outsourcing your manufacturing, whether to a contract manufacturer or through the shelter model, go to your manufacturer with competitor quotes and ask if they will match the price a competitor. 

If you are manufacturing in house, ask vendors and suppliers how you can reduce materials costs. Can you extend your contract time for a better bulk discount? Again, having a strong working relationship with your manufacturing partners is critical to more efficient manufacturing.

  1. Incorporate Lean Manufacturing

One of the key ways to reduce manufacturing costs in the overhead category is to go lean. Lean manufacturing originated from the Japanese model of efficiency and refers to a philosophy of continuous improvement. In short, any waste must be eliminated. Look for ways to eliminate waste in defective parts, overproduction (consider just-in-time manufacturing), talent utilization, inefficient transportation, excess inventory, motion waste on the assembly line, process redundancy, etc.

  1. Leverage a Shelter Service

As mentioned, a shelter service already specializes in these very methods of cost savings. They invest heavily in cultivating a highly productive workforce, go to great lengths to build a vibrant supplier network, and combine processes for maximum efficiency. The cost savings associated with using a shelter service to manufacture in a foreign country like Mexico are immense. 

It’s easier than you think.

Get in touch and we’ll show you how.