10 Effective Cost-Saving Tips for Manufacturers

When it comes to cost-saving techniques, many manufacturers instinctively look toward making cuts; this could mean anything from laying off employees to pulling back on new technology. However, these methods can bring down morale and quash innovation, which allows competitors to get ahead.

Good news: there are other ways to save money that won’t hurt business — and can actually help it thrive. We have compiled a list of ten ways to save that may help to cut costs without cutting personnel or creativity. These ideas often involve several small cost-cutting efforts that ultimately add up to a significant amount of savings, and they can be applied to manufacturers across all industries.

Ten Ways Manufacturers Can Save Money

1. Perform a Complete Assessment

A thorough and realistic assessment of all manufacturing facilities should be the first step taken when tackling any problem. Cost efficiency, cost reduction, and spend analytics need to be at the top of the list when it comes to supply chain management (SCM) and procurement. In fact, according to Deloitte’s 2018 Global Chief Procurement Officer (CPO) Study, nearly 80% of CPOs cite cost reduction as a strong business priority. Of course, other areas of operation may also need to be put under a microscope. By taking the time to look at the entire picture and make objective assessments of each component, manufacturers can set themselves up for success in the short term and long run. Because internal evaluators may miss the forest for the trees, it can help to bring in a third-party consultant.

2. Prioritize ROI (and Consider ROX)

Following an assessment, it’s important to prioritize findings. Oftentimes, manufacturers go several years without a comprehensive audit which results in obsolete processes, procedures, and technologies. Therefore, it’s important to take an objective approach to prioritization. Manufacturers may also want to consider ROX, or Return on Experience. Cutting costs should also benefit end-users, and provide them with a better experience. If money can be moved around in order to invest more in the areas that will ultimately improve interactions with customers — and provide measurable results — it’s worth looking into to improve standing within the industry. Read more about ROX here.

3. Seek Improvement from Within

It’s impossible to know where the next big idea will come from, so it’s important to reach out to employees on the factory floor. They are in the trenches every day, and can be a great source of ideas for improving processes in order to generate value. It’s also important to begin keeping a record of tribal knowledge. With nearly 25% of the United States population expected to be 60 years of age or older by 2025, manufacturers will be losing many employees to retirement, so it’s imperative to capture their knowledge and experiences in order to pass it along to the next generation of workers.

Pro Tip: Rewarding employees with a percentage of the cost savings from their improvement ideas is a great way to fuel their willingness to search for additional ways to save.

4. Reconsider Old Ideas

Don’t throw the baby out with the bath water. A common phrase, and one that manufacturers are all too often guilty of. When a cost-saving method doesn’t work out, they may abandon it completely, not realizing that there is the seed of a great idea in place. Original ideas are not necessarily bad ideas and, by going back and re-evaluating previously proposed cost-saving methods, it may spur new ideas or cause reconsideration, inspiring the implementation of them now or in the future.

5. Follow ISO 9001 Standards

It’s a small price to pay to gain an edge. Whether a facility has one employee or one million, the ISO 9001 outlines the requirements an organization must maintain in its quality system for certification. The standard enables manufacturers to meet their customers’ requirements for their product or service while fulfilling any regulatory requirements. It also helps manufacturers to consistently provide quality products, improving customer satisfaction and system processes. Visit ISO’s website to pick up a copy of the standards today (the 2015 version remains the most current).

6. Reduce Energy Consumption (and Be Greener)

Energy consumption is second only to labor when it comes to manufacturing expenses. To reduce energy costs following an assessment, manufacturers should begin making production decisions based on demand. In doing so, they can save on energy costs without sacrificing output or customer satisfaction. Being eagle-eyed when it comes to monitoring the production process and operating conditions in real time is also essential to managing how much energy is expended (and raising costs). Just a few ways to reduce costs include:

  • Installation of energy-efficient lighting

  • Optimizing air compressors and fixing leaks

  • Overhauling or replacing old HVAC systems

  • Creating an energy management team

  • Rescheduling usage of high-powered electric machinery

  • Implementing a continuous improvement strategy

While each of these suggestions may involve an expense, an assessment should show how each will ultimately reduce costs in the long term. Another benefit? Reducing energy consumption makes for a greener company, which can go a long way toward attracting new customers or new talent to the team.

7. Work Smarter Through Automation

By automating or consolidating repetitive manual processes, manufacturers can increase product quality, improve throughput, and potentially cut down costs. Robotics and automation have steadily advanced since they were first introduced to factory floors in the early 1960s. Today, with advances in sensing and machine learning, robots are more intelligent, versatile, flexible, and steadily falling in cost. With collaborative robots (cobots), workers are able to safely interact with the machines that can now do repetitive, hazardous, and ergonomically challenging tasks. The result is improved worker safety and reduced lost-time costs. Small and medium-sized manufacturers who previously couldn’t afford robotics and automation are increasingly finding positive ROI as the cost of automation falls and the ease of use rises.

8. Sell Scrap to Vendors

One man’s trash is another man’s treasure. This certainly applies to manufacturers, who may all-too often send off excess material to a landfill. But selling scrap to vendors is a useful—yet often overlooked—approach to cashing in on metal, batteries, and electronics. So, not only does selling scrap earn manufacturers money, it also helps ensure a brighter future for the next generation through recycling. Have unused material? Many manufacturers can also find a liquidator to take it off their hands and manage the sale of it, while also putting cash in their pocket.

9. Negotiate with Suppliers and Freight Carriers

Building long-lasting relationships with suppliers and freight companies is essential to a manufacturer’s success, but that doesn’t mean the first price presented should be accepted. Manufacturers need to take advantage of their position and try to renegotiate for better rates. Negotiations shouldn’t be viewed as a negative; they can actually contribute significantly to the success of a business, building mutual respect and delivering lasting, quality solutions, rather than poor short-term solutions that do not satisfy the needs of either party. Negotiation also helps avoid future problems and conflicts.

10. Embrace Lean Manufacturing

Lean Manufacturing removes or minimizes non-value work activity from the manufacturing process, from the front office to distribution. This results in a reduced manufacturing cost and increased speed to market, helping manufacturers realize their full potential. Lean manufacturing reduces waste — addressing motion, inventory, waiting time, transportation, information, quality, overproduction, processing, and creativity. Lean manufacturing should become part of the company culture, which does require teamwork and cooperation, but in the end, Lean’s focus on “continuous improvement” makes a business — and its bottom line — much better.

By implementing even just a few of the cost-saving ideas outlined above, manufacturers can be on their way to becoming more profitable. Before beginning a cost savings journey, there is one thing to remember: although cutting costs and saving money feels good, it’s important not to sacrifice the quality of your product or service. End-users need to always remain priority #1.

By Steven Brand, Strategic Communications Manager at California Manufacturing Technology Consulting (CMTC)

CMTC, a private non-profit corporation, was established in 1992 to provide consulting services to small and mid-size manufacturers in Southern California. CMTC is affiliated with the National Institute of Standards and Technology (NIST) and is part of the Hollings Manufacturing Extension Partnership (MEP) Program. The MEP Program contains 51 centers across the U.S. to serve the manufacturing community. Quarterly surveys ensure full accountability and a performance scorecard of certified value for our customers.

Reprinted by Permission