How Manufacturers Can Reduce Their Cost of Production?
In times of economic downturns that had been prevailing in the past thirty months in the Western hemisphere, manufacturers had been compelled to take a hard look at their production costs and methods to reduce them to maintain their profitability or stem the erosion in profits to the extent possible. Several strategies can be adopted to achieve cost reduction in manufacturing process but the most important among them are presented here.
1) Cost Reduction in Product Design:
It had been estimated that nearly 80% of the cost of the product results from the product development stages. Once the products have been designed to certain quality standards and specifications, it is near impossible to reduce production costs when these products are manufactured. Hence, the cost reduction should be carefully considered and implemented in the design stages, with the costs of product development, parts, material overheads, labor, and quality analyzed in complete detail. All possible avenues in reducing costs in each of these factors should be actively pursued.
2) Lean Manufacturing Principles for Reducing Manufacturing Costs:
Lean manufacturing includes improving productivity of labor, cutting down process times, reducing inventory levels, minimizing errors or achieving zero rejection levels in all stages of production, and judicious handling of scrap. The lean manufacturing and Kaizen principles help manufacturers in enhancing the productivity levels of labor and eliminate wastes at every stage.
3) Overhead Costs Reduction:
Overhead costs reduction consists of minimizing inventory costs, reduction in procurement costs by negotiating with vendors and suppliers, and mass customization process to manufacture wholesale products with minimum inventory and at short notices to meet orders quickly.
4) Cost Reduction by Standardization:
Standardization of products, parts, and processes had been observed to bring down manufacturing costs by 50%. Organizations can benefit from economies of scale by bulk purchasing of standardized parts and reducing inventory overheads to 10% of normal levels.
5) Rationalization of Production Lines and Processes:
Manufacturers should strive to isolate products that are causing losses on the basis of production and shipping costs to sales value. These products should be removed from the portfolio, unless they have strong brand loyalties. In those situations, the overheads for these products should be cut down to reduce or eliminate losses from these products.
6) Simplification of Supply Chain Management:
The other step in reducing production costs for manufacturers is to simplify supply chain management. Implementation of Kaizen and 6 Sigma principles can also be helpful in reducing quality costs and constant measurement of total costs in all categories involved with production.