If you run a business that produces goods, you are likely very aware of how much it costs you to produce each unit. These costs are tied directly to your margin. If you can reduce your costs, you can earn more profits. However, many business owners find themselves wondering how they can possibly get their production costs down. Here are a few possible strategies:
1) Simplify The Design
Try revisiting your product design. When you first come up with a product, you likely are focused on how to deliver the right value to users. While production costs are always a consideration, they usually are secondary in the initial design. You may discover that there are ways to simplify the design without reducing its value.
Another factor in this is that you likely have more expertise now. You are experienced with producing the product and know exactly how it comes together. For example, you may determine that you can make a casing piece out of stamped instead of forged metal. Similarly, you may be able to upgrade to casting your plastic component instead of printing them.
2) Reduce Utility Costs
If you are running a production facility, you are likely drawing a lot of electricity to operate your machinery and air condition your factory floor. You may be able to significantly lower your production costs by finding a less expensive utility source. In many markets, energy deregulation is breaking up monopolies and allowing access to less expensive electricity.
You may even be able to produce your own electricity with solar power. If you have a roof that gets sufficient sunlight, photovoltaic panels may help you significantly cut costs. You don’t even necessarily need to make a big investment into the equipment. Using a solar PPA for installation, you get cheap access to renewable electricity without the upfront cost.
3) Remove Packaging
Shipping can add a significant cost to your production expenses. While this isn’t strictly part of manufacturing, it is so closely related that it is relevant.
Much like simplifying your design, you can simplify your packaging. For example, if you currently store your widgets in impact-resistant foam forms, you may be able to switch to cheaper plastic air cushions. These minor changes can simplify your process, cut down on space needed for packaging materials and save money.
Changing up your packaging may even save you on shipping expenses. If you can find something smaller to pack your goods in, you can reduce the number of truckloads you need to deliver orders to your customers. That can be a massive saving over time.
4) Negotiate With Suppliers
If you buy components or supplies from vendors, you may be able to reduce your costs. Chances are that you negotiated your original agreements when you were just getting started. You probably were only ordering small quantities and were an unproven customer. Your vendors had no idea if you would be in business the next year, so they priced accordingly.
Negotiating with your suppliers can help you significantly reduce the costs of your production. As your business runs longer and buys more supplies, you have much more negotiating power. If you’ve been working with a supplier for a while, continue working with them but be open to leaving if they can’t give you a satisfactory price.
Another way to cut down on supply costs is to find supplies you can store more easily. That enables you to buy in bulk and get a discount. This may be a consideration as you redesign your product and packaging.
These tips will help you reduce your production costs. It can make a major difference in your bottom line, so this type of operational improvement is worth the time and effort. If you are able to combine several of these ideas such as cheaper utilities and negotiating with vendors, you can really increase your profitability. Get started today and see what you can achieve.
