11 Effective Cost-Savings Ideas for Manufacturing

Byline: Matthew Radford, MES Implementation Consultant, CAI Software, LLC

Manufacturers are constantly looking for cost savings ideas, which is no surprise: Cost reduction directly impacts a business’s profitability, competitiveness, efficiency, sustainability, and growth.

Many manufacturers instinctively look toward making cuts—which could mean anything from laying off employees to pulling back on new technology. However, these methods can bring down morale and quash innovation, allowing competitors to get ahead.

Good news: There are other ways to save money that won’t hurt business—and, in fact, ones that can actually help it thrive. And if manufacturers can successfully cut costs without a detriment to employee morale or product quality, they can enjoy several advantages.

Improve Overall Financial Health Lowering costs results in increased profit margins and cash flow, reduces debt and waste, and frees up resources for manufacturers to focus on innovation and growth.	Gain a Competitive Advantage By reducing manufacturing costs, businesses can provide sustainable, competitive pricing, which will not only attract new customers and retain existing buyers but also provide a competitive advantage over other manufacturers in the industry.
Enhance Productivity & Operational Efficiency Since cost-reduction activities often streamline processes and eliminate inefficiencies, manufacturing companies can enjoy increased productivity and efficiency as well as cost savings.	Become More Financially Resilient If manufacturers save money and cut down on costs, they are better prepared to survive the unexpected. From natural disasters to economic downturns, financially stable companies are more resilient.

We’ve compiled a list of ideas that may help manufacturers reduce costs without cutting personal or stifling 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 industries.

11 Cost-Saving Ideas for Manufacturing Companies

By implementing even just a few of these cost saving ideas, manufacturers can be on their way to becoming more profitable. However, keep in mind that cutting costs and saving money is great, but not if it impacts the quality of your product or service. End users always need to remain priority #1 in today’s competitive landscape.

1.    Understand Your Operations Better – One Piece at a Time

Conducting a thorough and realistic assessment of all manufacturing facilities is the theoretical first step when looking to improve operations and lower costs. But in reality, it’s next to impossible to know everything when you have a large, diverse manufacturing company. Even in smaller companies, there are countless nuances to the business. As we often say, “If you try to understand everything, you usually implement nothing.”

A more pragmatic approach is what we call the “Lighthouse Approach.” The idea here is to start with one specific, focused area of the business and assess it for efficiency, issues, and opportunities for improvement. Next, develop a solution plan, or pilot. Then, invite groups to visit, learn, critique, and suggest improvements. When the stakeholders agree on the pilot, you plan your rollout. And after seeing the rollout through, you’re ready to move on to the next area of your business.

2.    Prioritize ROI (& Consider ROX)

Following any assessment, it’s important to prioritize findings based on value. 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 return on investment (ROI) as well as return on experience (ROX) as part of their analysis. Cutting costs should 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.

For example, consider using A/B testing of multiple production model or processes. At the end of the production run of each, measure the ROI.

• Which process cost more in labor and time to execute?
• Which process went faster?
• Which had less waste or produced a higher quality product?
• Which process was easier to execute?

Use your analysis to determine the best, and most cost-effective, route going forward.

3.    Learn from Your Employees

It’s impossible to know where the next big idea will come from. Have you considered asking your staff members? They are in the trenches every day and can be a great source of ideas for improving processes in order to generate value, so it’s important to reach out to employees on the factory floor.

Consider implementing an incentive program to encourage new ideas and feedback. Rewarding employees with a monetary bonus or perhaps even a percentage of the cost savings from their improvement ideas are great ways to fuel their willingness to search for additional ways to save.

It’s also important to begin keeping a record of this invaluable 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.

4.    Give New Life to 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 idea doesn’t quite work out as planned, 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, manufacturers may spur new ideas or reconsider old ones, inspiring the implementation of them now or in the future. As stated in the idea #3, consider engaging with your employees and listening. Learn from your team, find the past missteps, and make the necessary improvements.

5.    Follow ISO 9001 Standards

Following ISO 9001 Standards is a small price to pay to gain an edge.
As stated by the International Organization for Standardization (ISO):

“ISO 9001 is a globally recognized standard for quality management. It helps organizations of all sizes and sectors to improve their performance, meet customer expectations and demonstrate their commitment to quality. Its requirements define how to establish, implement, maintain, and continually improve a quality management system (QMS).”

Whether a facility has one employee or 10,000 employees, any organization that wants to improve its quality management system, meet customer and applicable statutory and regulatory requirements, and enhance customer satisfaction can apply the ISO 9001 standard to their production processes. Manufacturers can take the extra step of becoming ISO 9001 Certified as well which may be required or expected by third party regulatory bodies or other compliance standards.
All in all, manufacturers following ISO 9001 Standards benefit from better quality management practices, happier customers, and reduced costs.

6.    Reduce Energy Consumption & Waste

Energy consumption is second only to labor when it comes to manufacturing expenses. To reduce energy costs, manufacturers should begin making production decisions based on the specific energy demands of each of their machines and operate them in relation to peak and off-peak hours. Running their most energy-demanding machines during off-peak hours will lower energy consumption costs. By following this model, 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 and be greener include the following:

• Installing 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

Not all these ideas may have noticeable success in your business or even be a viable option. A thorough analysis of your systems and operations is necessary to identify the biggest energy expenditures and opportunities for improvement.

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.

A good resource to begin this initiative is the United States Environmental Protection Agency’s section on regulations for manufacturing.

7.    Work Smarter with 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 (also known as “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.    Improve Material Utilization

Being more efficient and intentional with your materials, and reducing scrap production are essential practices for a manufacturer. The more of your materials you can use in your finished goods and the less scrap at the end of a run, the further your dollars go.

For example, you can modify a stamping die to create a small part you can sell where it’s used to just drop a piece of scrap. Additionally, melt down your excess material to use on new parts (casting, plastic molding, etc.)

Now you are producing a part without a tool, reducing the amount of material left as scrap, and getting revenue from a customer at a premium.

However, even a little scrap is inevitable. And what should you do with that remaining scrap? Sell it to vendors!
Selling scrap to vendors is a useful approach to cashing in on metal, batteries, and electronics. Additionally, selling scrap not only earns manufacturers money but 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 & 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 approach results in reduced manufacturing costs and an increased speed to market, helping manufacturers realize their full potential. Lean manufacturing also reduces waste—addressing motion, inventory, waiting time, transportation, information, quality, overproduction, processing, and creativity.

To be as effective as possible, lean manufacturing should become part of the company culture, which does require teamwork and cooperation, but in the end, the focus on continuous improvement makes a manufacturing business—and its bottom line—much better

11.    Invest in Inventory Management & Supply Chain Operations Technology

Today’s manufacturers can benefit from a wide range of inventory management and supply chain operations technology specifically designed to streamline, automate, and optimize processes across the manufacturing lifecycle. From warehouse management systems (WMSs) to manufacturing execution systems (MES), technology in the manufacturing industry is better than ever. With the use of technology, businesses can get work done faster and more efficiently—saving on costs without sacrificing performance.

Reduce Manufacturing Costs with CAI Software

Whether you are looking to automate production, increase your return on investment, reduce costs, or streamline operations, we can help. With our suite of tools and access to our expert team, optimizing your business processes and increasing your ROI is easier than ever.

Contact us today to schedule time with one of our manufacturing experts for a free consultation.