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6 Ways to Lower Your Manufacturing Costs to Gain a Competitive Edge

manufacturing costs

As you may know or not know, Cerasis is not a manufacturing consultancy who provides direct services to manufacturers to improve direct manufacturing process. However, we have a great affiliation and special interest with the manufacturing community. Because our shipper customers, whom we help in transportation management through freight technology and managed transportation services are mostly manufacturers, we like to write about best practices and tips that enrich and improve the operations of a manufacturer.  This post will provide 6 things a manufacturer can consider to help make operations more efficient and thus allow them to lower their overall manufacturing costs. In this way, you can see how it's important that we speak about overall improvements for a manufacturer, and not just in the logistics space, although, with transportation costs making up on average 10% of sales, logistics improvement is a huge way to lower total manufacturing costs.

Keeping Operations Improvements Constant By Keeping It Simple and Efficient

Over the years, machines and technology have developed to solve rapidly changing and complex manufacturing issues, and to meet consumer demand for better, faster, and higher-quality products all with the goal of lowering manufacturing costs still an important factor. So how does the modern manufacturing company focus on achieving all of these things effectively?

With new technology comes the need for more knowledge and training to operate new, advanced equipment. Many manufacturing companies are often finding it very difficult to adapt to market conditions while simultaneously optimizing production costs and efficiency.

To maintain control over the production process as new technology is developed, manufacturing executives are striving to get new information as quickly as possible, apply this information to existing infrastructure, and make better decisions, faster. Modern manufacturing solutions can help executives manage assets in ways that both meet customer demand and help cut manufacturing costs.

6 Ways to Help you Lower Your Overall Manufacturing Costs to Remain Lean and Agile all While Helping the Bottom Line

Here are a few ways to improve production efficiency so you may lower your manufacturing costs in your manufacturing operations:

Optimize the production process

Look at your entire process as a whole, instead of focusing on just the products or manufacturing costs only that are associated with the whole. Directing your attention to process optimization may be the most important step in improving overall efficiency. Take a close look at even the smallest details of your production process, and how the tiniest characteristics play a part in the bigger picture. You don’t want to optimize only part of your system and potentially interrupt or damage another part of your process down the line. How does each part, each machine, each production task affect the entire process? Before you try to make any changes or improvements, consider how change will affect the process as a whole.

Optimize your workforce

Balance your labor requirements and lower labor costs by taking a demand-calibrated approach, rather than a capacity-utilization approach to production decisions. You can cut costs by reducing overtime expenses through workforce optimization. You can also employ amazing labor management system creating essentially, a "hyper productive workforce" through:
  • Full cost visibility
  • Performance accountability – managers driving workforce productivity
  • Self-funded Incentive pay – employees driving worker productivity
We've thoroughly enjoyed learning more and more about the "hyper productive workforce" and all of the other labor management capabilities after coming across the Easy Metrics blog. We encourage you to check them out as a way to control labor costs through data analysis driven by software implementation.

Monitor and manage your energy consumption

Second to labor, energy use is one of the highest manufacturing costs associated with running your operations. Once you have optimized your process and your workforce, perhaps you can run at a slower pace to save energy. Making production decisions based on demand, you can save on energy costs without sacrificing output or customer satisfaction. Monitoring your production process and operating conditions in real time is essential to managing how much energy – and cost – is expended. If you are looking for great tips on how to reduce your energy consumption in order to lower manufacturing costs, these 7 areas are great to focus on, as found on the Wisconsin Manufacturing Extension Program's manufacturing costs energy consumptionwebsite:
  1. Install energy-efficient lighting
  2. Optimize air compressors and fix leaks
  3. Overhaul or replace aging HVAC systems
  4. Create an energy management team
  5. Reschedule usage of high powered electric machinery
  6. Continuous improvement strategy
  7. Conduct an energy assessment
The industrial sector accounts for approximately 31 percent of all energy consumption in the United States—consuming just over 21,000 trillion Btu annually—and much of this energy is used for manufacturing processes. On average, manufacturing facilities use 95.1 kilowatt-hours (kWh) of electricity and 536,500 Btu of natural gas per square foot annually, though actual consumption varies widely depending on the subsector. To better manage your facility’s energy manufacturing costs, it helps to understand how you are charged for energy. Most utilities charge manufacturing facilities for their natural gas based on the amount of energy delivered, in therms. Electricity, on the other hand, can be charged based on two measures: consumption and demand. The consumption component of the bill is based on the amount of electricity (in kWh) that the building uses during a month. The demand component is based on the highest (or peak) usage in kilowatts (kW) occurring within the month, or, for some utilities, during the previous 12 months. Demand charges can range from a few dollars to upwards of $20 per kilowatt-month. Because energy costs can be a considerable percentage of your bill, care should be taken to reduce peak demand whenever possible. Furthermore, the NIST, The National Association of Manufacturers, and The Manufacturing Institute put out a great white paper on how efficiency and innovation are improved when you reduce your energy manufacturing costs. You can check out the white paper here.

Lower the cost of regulatory compliance

With an improved, optimized system and real-time monitoring of how your production processes are operating and being managed, the manufacturing costs of regulatory compliance is expected to decrease. Additionally, production mistakes will become less frequent, and the cost to correct these mistakes will be reduced. Typically, when you employ technology, as is the case with our transportation management system, you often have built in automation that keeps you compliant.

Consider your inventory carrying costs

If you are storing your inventory for long periods of time, it can be very expensive. As a manufacturer, consider the cost of storage, insurance, maintenance, and disposal – if applicable. Avoid overproduction with an optimized production process and reduce excess storage costs. Adjust your manufacturing operations to respond directly to customer demand to avoid excess inventory or underproduction.

Focus on freight and transportation management

As stated in the beginning of this post, transportation costs can make up as much as 10% of total revenue. We have often seen that of all the costs of doing business for a manufacturer transportation can make up 50% of manufacturing costs in the logistics category. With that large amount, having a handle on transportation management is a must for manufacturers to remain competitive. If you are not using a Transportation Management System or aren't employing all the best practices in transportation, you could be doing all the preceding things correctly, but still hemorrhaging money at the bottom line. If you are struggling to maintain costs in transportation, reach out to use for a consultation to discuss your current transportation management strategies and tactics to see if we can help you improve today and thus put more back to the bottom line. Identifying common production process weaknesses can help manufacturers approach cutting manufacturing costs company wide, determine the best way to maintain ultimate operational visibility and control, and create a system for prioritizing ongoing optimization projects without failing to meet market demands. But most importantly, it gives a manufacturer a competitive edge.
Adam Robinson
Adam Robinson oversees the overall marketing strategy for Cerasis including website development, social media and content marketing, trade show marketing, email campaigns, and webinar marketing. Mr. Robinson works with the business development department to create messaging that attracts the right decision makers, gaining inbound leads and increasing brand awareness all while shortening sales cycles, the time it takes to gain sales appointments and set proper sales and execution expectations.
Adam Robinson
Adam Robinson
[WHITE PAPER] The Top Logistics Trends that Will Impact Logistics Management in 2018Download Now

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