How Can Manufacturing Companies Reduce Costs?
As a manufacturer, you likely have to deal with large investments and the high costs of production. Part of that cost is the Cost of Poor Quality (COPQ): scrap, rework, returns and the time spent fixing problems, which often represents one of the biggest issues in the industry. If that is the case, finding new, smart ways to save money in an effort to increase your profit margin might be your number one priority. How can manufacturing companies reduce costs?
In short, manufacturing companies reduce costs by stacking several smaller, measurable measures instead of one drastic cut: keep an experienced core workforce, remove lean waste, handle literal waste correctly, reduce energy consumption, maintain equipment on a schedule, and automate routine tasks. Pick one cost line, measure it, change one thing, and check the result before moving to the next.
6 Efficient Ways Manufacturing Companies Can Reduce Costs
But rather than drastically cutting resources to one department, which could significantly affect the quality of production, it might be best to grow your bottom line by utilizing a number of smaller cost-reducing measures that will quickly add up to large savings. To that end, here are some of the best and most efficient ways you can reduce expenses in your manufacturing company and increase efficiency.
1. Reconsidering Labor Costs
When attempting to reduce your expenses, the cost of labor is a great place to start. But even though many employers might believe trimming their current workforce is a quick cost-saving tactic, this is actually not the case, as hiring and training new workers can often come with a number of hidden expenses.
One of those hidden expenses is turnover, which is directly linked to how you treat your employees. Because of the continual need to go through the recruiting process, having a high degree of worker turnover can cost a firm a lot of money. Every new hire needs time to reach full speed, and mistakes made during that period show up as scrap, rework and overtime.
Instead, a wiser business tactic would be to ensure you have a core team of professional, experienced, and efficient workers to manage, which can easily be achieved by reviewing your current employees, improving workplace safety, investing in excellent training opportunities, and outsourcing work for specific, uncommon projects. Written procedures and work instructions make that training repeatable, so knowledge stays in the company when someone leaves.
2. Implementing Lean Manufacturing
There are many common misconceptions about lean. Most companies deal with metaphorical lean waste that disrupts production in one form or another, whether it’s a waste of time, space, or resources. The Lean Enterprise Institute defines this waste, called muda in the Toyota Production System, as any activity that consumes resources without creating value for the customer. While this might mean not utilizing your employees’ skills or manufacturing tools to their full extent in some instances, in most cases such waste will come with significant financial costs. Lean manufacturing aims to improve production by eliminating this metaphorical waste, allowing you to achieve more with less.
Whether you decide to downsize your space, improve efficiency by cutting down on time, or even utilize less equipment and resources, implementing some lean manufacturing practices will allow you to significantly reduce your production costs. A practical first step is to walk one product’s path through the plant and note every wait, move, search and rework loop along the way.
3. Finding Better Waste Management Solutions
Of course, most businesses will have to handle literal waste during production as well, and likely already have certain waste management solutions set in place for the dangerous types of waste they are legally required to dispose of consciously. However, there are some forms of chemical waste, such as hydrogen sulfide, that can still cause stains, discoloration, tarnishing, and corrosion, all of which can lead to additional costs if not dealt with correctly. Hydrogen sulfide is also a safety issue: OSHA describes it as a highly flammable, explosive gas that can create life-threatening situations if not properly handled.
If this is the case with your company as well, it might be best to invest in efficient hydrogen sulfide removal solutions. Besides ensuring the concentration of this chemical is as low as possible, these solutions will also help to prevent contamination and reduce your overall waste.
4. Reducing Energy Consumption
Although energy might be essential for the functionality of any business, these costs can quickly add up if you’re not careful about consumption, which is why investing in energy-saving solutions can be a great way of reducing your expenses and following through with continuous improvement.
If you don’t already have an energy conservation plan set in place, introduce measures such as LED lights, motion-sensor lighting, smart thermostats, updated HVAC systems, energy-saving manufacturing equipment, strategic machinery use, as well as scheduled startups and shutdowns. Check the monthly utility bill against production volume so you can see whether energy per unit is actually falling. No matter how small, every effort to conserve energy can result in significantly lower overall costs.
5. Improving Maintenance Routines
While waiting until your machinery breaks down to fix it might seem logical to some, it can actually come with higher costs in the long run, and it might even counter your waste-reducing efforts. Similarly, outdated and poorly maintained equipment can add to your overall expenses as well, both when it comes to energy consumption and high costs of repairs.
Instead, the wisest decision any manufacturing company can make is to maintain their equipment regularly. The UK Health and Safety Executive notes that fewer breakdowns mean less dangerous contact with machinery, as well as the cost benefits of better productivity and efficiency. Aside from essential aspects such as cleaning, lubricating, and replacing filters, this should also mean conducting routine audits of the safety, efficiency, and operational condition of your machinery, and keeping each machine’s maintenance log up to date, in an effort to save money on costly replacements and repairs in the long run.
6. Investing in Automation Systems
Human labor can hardly be fully replaced in many industries, but it can be combined with technology for optimal efficiency. One simple way automation can help your business is by utilizing technology to reduce costs by automating routine tasks such as customer support, data collection and migration, backups and restoration, employee requests, attendance tracking, invoicing, payrolls, etc. If you have the means to invest in more refined technology, solutions like collaborative robots can be brilliant for conducting quicker, more effective work, as well as delivering higher quality output, thus representing a great return on investments. Start with the repetitive task that causes the most errors or overtime, and document the process before you automate it.
Manufacturing Cost Reduction Worksheet
Use this worksheet to turn the six measures into a plan. For each area, record the cost you will track, the first change you will make and how you will check the result. The example column is hypothetical and shows a small metal parts shop; replace it with your own numbers.
| Cost area | What to measure | First change to try | Hypothetical example |
|---|---|---|---|
| Labor | Turnover rate, overtime hours, time for a new hire to reach full speed | Written work instructions and a structured training plan for each role | Two operators leave each quarter; new hires take six weeks to run a press unsupervised |
| Lean waste | Waiting time, travel distance, work in process, rework loops | Walk one product’s path and remove one wait or move | Parts wait two days between cutting and bending because both cells batch in different sizes |
| Literal waste | Scrap weight, disposal cost, corrosion or contamination incidents | Separate recyclable scrap and treat problem chemicals at the source | Mixed scrap bins mean offcuts that could be sold are hauled away at a cost |
| Energy | Energy use per unit produced, idle machine hours | Scheduled startups and shutdowns, LED and motion-sensor lighting | Compressors and lights run through the weekend when the plant is closed |
| Maintenance | Unplanned downtime hours, emergency repair spend, overdue maintenance tasks | A preventive maintenance schedule and an up-to-date log for each machine | The main press stops twice a month because lubrication is done only when someone remembers |
| Automation | Hours spent on repetitive tasks, error rate on manual data entry | Automate one routine task such as attendance tracking or invoicing | A supervisor spends Friday afternoons retyping time cards into payroll |
Work through one row at a time. Record the starting number, make the change, and compare the same measure a month later. Keep the changes that lower cost without hurting quality, and write them into your procedures so they stick.
Efficient Ways Manufacturing Companies Reduce Costs
The manufacturing business always comes with high investments and costs of operation, as an unavoidable aspect of the industry. There are many hidden costs to offshore manufacturing, so that is not a great solution for many. However, simply by implementing some of the cost-reducing measures mentioned above, you might be able to efficiently lower your expenses, leading your company to a more successful and profitable future.
Frequently Asked Questions
What Is the Fastest Way for a Manufacturer to Reduce Costs?
Start with waste you can see without new equipment: idle machines left running, parts waiting between steps, scrap that could be recycled and repairs caused by skipped maintenance. These changes cost little and show results within weeks.
Should Manufacturers Cut Staff to Reduce Costs?
Usually not as a first move. Hiring and training replacements carries hidden costs, and high turnover adds recruiting time, scrap and rework. Keeping an experienced core team and training it well tends to save more.
What Is Lean Waste in Manufacturing?
Lean waste, or muda, is any activity that consumes resources without creating value for the customer. Examples include waiting, unnecessary movement, excess inventory, overproduction and rework.
How Does Preventive Maintenance Reduce Manufacturing Costs?
Regular maintenance means fewer breakdowns, which improves productivity and efficiency and avoids the higher cost of emergency repairs and replacements. It also makes equipment safer to operate.
