3 Ways to Cut Manufacturing Costs

Although many other nations are gaining ground, the United States remains the world’s top manufacturing country. We produce more goods and services than any other nation, and as you can imagine, this high production rate costs money. In fact, according to the National Association of Manufacturers, it is 20% more expensive to manufacture in the United States than it is among other major trading partners, excluding labor.

American manufacturing companies do enjoy reduced costs when it comes to energy, thanks largely in part to our abundance of natural gas, but other costs create budget issues for some organizations. Regulatory compliance, corporate tax liability, tort litigation, and employee benefits are all major costs associated with operating in the United States. Our corporate tax liability is the highest in the world and the National Association of Manufacturers state manufacturers spend an estimated $180.5 billion complying with regulations annually.

There are several methods to counteract these taxes and fees to help your bottom line. Here are three simple yet effective ways to cut your manufacturing costs:

Production

As we are now more than a decade into the 21st century, operating with outdated technology and machinery is costing you money every single shift. When you consider the cost for repairs as well as the maintenance costs of some of this older equipment, the money you believe you are “saving” is going toward all of these services—all while you drop further and further behind your competition, who rid themselves of their outdated technology and machinery years ago.

Another great way to cut production costs is to reevaluate your production real estate. Take a look at your production area and make sure you’re getting the most out of your operating space. Unused workspace can either be utilized for another facet of your operation or for storage and additional office space.

Labor

There are many ways to trim down costs when it comes to labor. One popular method is to cross-train workers in two to three areas to lessen the need for more employees. Enhancing the skills of one employee, who as a result will become more valuable to the company, is more cost-effective than hiring one or two more entry-level employees.

Reducing overtime may be unfavorable to employees, but can be a necessity for some shift managers. After all, more drastic measures such as layoffs or a switch to part-time hours are devastating when compared to simply halting overtime pay. Taking a detailed look at your shifts will let you know what measures to take.

Finance

The advice in this section would have to be truly industry-specific to apply to your company, but there are a couple of general approaches to make. For example, do what you can to renegotiate all contracts annually. Renewal discussions and annual bidding will only benefit your company and ultimately give you more room for negotiation.

Also, take a second look at your insurance policies and be sure you are not duplicating coverage or over-insuring in some areas. Many manufacturing companies also lose sight of consolidating their insurance policies as well as their bank accounts. There is a lot of money to be saved if you take the time to really evaluate your state of affairs—and no time is better than the present.

About the author:

Darin Martin is Sales Manager of Vermeer Midwest (http://www.vermeermidwest.com/), a leader in new and used industrial equipment sales, rentals and services in the landscape, organic recycling and underground utility construction industries. Founded in 1971, Vermeer Midwest has nine locations across the Midwest and is dedicated to providing full customer support with their parts and services advantage.