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Focus On Cutting Production Costs Rather Than Your Workforce

In the current economic landscape, many startups are feeling the financial pinch. Numerous businesses have shut shop while others are struggling to stay afloat. In such a situation, it is but natural that production units will look for cost reduction strategies in their business. When it comes to cutting costs, there is always talk about reducing the workforce.

Employee salaries account for a large portion of the outgoing per month for a company of any size. However, this strategy may work for large startups and not for entrepreneurs. When startups are low on funds, they cannot afford to show the door to their only account manager or staff developer.

If you have a small team and a limited budget, the best solution would be to focus on reducing production costs. There are many different ways in which you can do this, and not each one would work for every company. Sometimes, a mix and match of strategies work best, and each business owner has to decide which solutions work best for them.

Some Points To Consider

Here are some ideas on how you can cut production costs rather than your workforce, in financially difficult times:

1. Be Proactive

It’s vital to be proactive in your approach, which means that you need to find ways and means to lower your production cost well before you start feeling the pinch in your budget. This will allow you to have more cash set aside, which will prove to be a cushion in difficult times. Also, this approach will make you a distinct threat to larger, more well established companies.

2. Create a System

You should up initial production cost reduction in a very structured way. Work on creating a system that allows you to keep a constant eye on your costs and create additional savings. This is a very effective way of keeping and achieving the cost reductions you need. These kinds of systems help you identify what is driving your production cost higher. You can discuss your requirements with your team members and develop strategies to deal with these high production costs effectively.

3. Focus On Production

If you adopt a focused approach in your production processes, you will be able to make better products for lower pricing. This will give you a competitive edge in the market while improving your financial security.

Any seasoned business person will tell you that no matter how effective you think your production processes are, there is always scope for improvement. Making small tweaks and changes in the operations after analysing and assessing your system can help you to make your production processes more efficient, which ultimately translates into reduced cost.

4. Costs of Components

The components used to make the finished products become the main costs in any production process. When you reduce this spend even by a small margin, on a percentage basis, this can have a significant impact on the overall production cost. There are times when companies can reduce their components costs just by switching the types of components they use without affecting quality.

Buying in bulk is another way to meet the same objective. Sometimes specific designs allow for fewer fittings or less material. When you make these changes, you can reduce cost without affecting the quality of the final product. It is a good idea to review these possibilities as it can reduce your production costs.

5. Change Suppliers

You can also liaise with your suppliers, and negotiate some cost reduction for the components you source from them. If you feel that a particular supplier is willing to reduce the price, and provide less expensive alternatives for offer discounts, you can explore sourcing the components you need from multiple suppliers.

Send your component requirements to different potential suppliers in your region and select one that offers you excellent value in terms of low pricing and correct specifications. When you source from multiple suppliers, you might have to put some additional effort into coordinating with them. However, it will help you to benefit from the competition created, and they will keep their pricing low.

6. Alter the Product Design

This is another proven and effective strategy you can use to reduce production cost. Redesign your product if possible, without making any significant changes that will affect its performance or quality. As a company that produces any product, you need to identify the main characteristics of that product which make it a success in the marketplace.

If you look hard enough, you will find that there could be certain features that don’t add to much value but are heavy on your pocket. You can change the design of your product, eliminate the unimportant features without altering the characteristics that your customers value.

7. Prioritise Employee Training

When you are evaluating your production costs, you might find that your employees are not aware of how we can help with reducing them. Sometimes, lack of efficiency can also hike your production costs. Focus on training your employees to understand exactly how your production cycle works.

Let them become aware of the role they play in reducing the cost of production; it automatically makes them a part of the solution. When you train your employees to be more aware of these aspects of your business, and you inform them about progress, they automatically become partners in your cost reduction efforts.

8. Use Technology to Your Benefit

When you incorporate the right kind of technology in your business and automate some of the processes used in production, it improves the level of consistency while reducing costs. You can also use this aspect to analyse your production workflow. It’s true that most modern-day companies already use a significant amount of automation.

However, there could still be some scope for optimising the workflow. You can use software which allows you to analyse your production processes. It will also help you identify waiting time and what is causing these delays. Also, you would have better visibility of which components and materials are not available when required, allowing you to increase efficiency, streamline production processes and reduce costs.

For more information about how to reduce recruitment costs in our business, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.

Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777