Calculation of production costs is necessary to make the right key decisions for the company, including pricing policy, production planning and control as well as implementation of changes in the company’s structure.
Does optimization of production costs make sense?
Limiting the expenses incurred by the company in connection with its production activity is one of the two basic and, at the same time, the most effective solutions affecting the achievement of prosperity – next to an increase in sales revenues. This is a great way to meet the biggest dreams of most entrepreneurs, that is multiplying the assets. Looking more realistically, they can also be treatments that protect the company from debt or bankruptcy. Of course, the optimization requires knowledge of the market, basic knowledge of economics and entrepreneurship and good intuition. We meet ambitious efforts and present some of the best ways to reduce production costs:
Costs of production.
This is all costs directly related to a specific product or indirectly related to the product. They are related to the technological process of manufacturing products. By presenting this issue more vividly, production costs can be defined as the total expenditure for production, which usually includes funds allocated for the purchase of raw materials, payments for real estate or utilities, as well as remuneration for employees. They are divided into: direct production costs – value of materials used for production, expenditure on transport, etc .; indirect production costs; fixed costs; variable costs.
The goal of each company is to achieve the highest possible profit, which is why an extremely important element of the company’s operation is detailed cost analysis, which allows determining how much it costs to produce a specific amount of products, recognize where costs are generated, and how to reduce these costs.
- 1. Professional staff
The production process requires properly trained employees for proper and efficient conduct. Qualifications, competences and professional training – today the situation in virtually every industry is so dynamic that it is necessary to supplement and update knowledge at training and conferences. In addition, more and more young people focus on development (this is related to the fashion for coaching and the so-called life trainers). Therefore, it is worth taking care of employees and making sure that they do not stay in place. A professional with great experience is priceless for every company. Activities related to the improvement of the quality of the staff concern also acquiring new hands for work. The key here will be to streamline the entire recruitment process, so as to find candidates who perfectly meet all the requirements. It is worth to bet on a recruiter, good in his profession will be like a head hunter – even in the absence of interest in our offer on the market will find people with a predisposition to become a very good employee, solidly performing their tasks.
- 2. Implementation of new technologies
This treatment is associated mainly with the purchase of specialized machinery and equipment related to production. Reliability and efficiency of machines will shorten the entire production line and lead time (and finally time is money!). Investing in new devices requires humility – it is usually better to buy more expensive technology that will pay back quickly than to be tempted with cheap but defective devices. Activities related to new technologies should not end with purchase and assembly. Servicing, monitoring the work of machines and conducting research or analysis will pay off. The right equipment is the foundation for office positions. The right firmware is almost always a good solution. New technologies in the enterprise are tools that work in favor of the company, allow you to control processes, improve them, and collect data, analyze them and draw useful conclusions based on them.
3. Inventory reduction
With a large amount of inventory, the company is exposed to losses due to frozen capital. Two excellent concepts for unlocking this capital are minimizing the so-called WIP (work in progress) and JIT (Just-In-Time Manufacturing) application. In a simplified way, it consists in managing production time, so as to quickly finish production of goods, but at the same time not be forced to store it and wait for sale. The precursor of such concepts is the Japanese Toyota concern, which for many years has been winning the title of the most valuable automotive brand in the world, according to the statement by Kantar Millward Brown. The golden mean is rejection of multitasking and concretisation of activities, without postponing the manufacturing process “for later”, and establishing the limits of tasks that can be performed by teams of employees who have a high degree of independence in implementation.
4. Perfecting internal logistics
The bigger the production plant, the more difficult it is to control the complicated process of supplying the production stations with the necessary raw materials and materials. Appropriate organization of this issue is a solution to many problems related to maintaining the continuity of production or the smooth flow of materials and products. The use of the IT MES system supporting the professional production implementation is a definite help and facilitating the reorganization of internal logistics. Unlimited access to data about the current state of production, demand for specific raw materials, alerts about possible failures are just some of the invaluable information available in real time in the automated production process. Such information is a saving for the company due to the ability to quickly respond to current needs – optimization of production activities that can be done better, delivering raw materials exactly when they are needed, eliminating possible failures or quickly removing them, because the system informs which element has stopped production.
5. Morale and atmosphere
It is difficult to find an employee who will be satisfied with the awareness that he is only a piece of machinery, a human on a large production board. Therefore, it is worth taking care of the well-being of subordinates, providing them with comfortable working conditions, attractive prizes and additional bonuses. The purpose of raising morale sometimes just plain praise, people like when their work is appreciated. More and more companies are practicing integration trips and organizing events, thanks to which employees feel the bond with the brand of the company they work for. Participation in integration events is also translated during production – a team of people will better deal with the problem than the individual.
6. Use of employee ideas
It is in human nature to look for ways to make your work faster and more pleasant, which is why a very good method to look for alternative production solutions for problems is to listen to the employees’ suggestions. This approach is not new – it is one of the foundations of the Japanese Kaizen idea, which assumes that despite working according to existing instructions and standards, employees regularly submit their proposals for solutions to improve their work. In this assumption employees are constantly improving all areas of the organization regardless of their position and place in the company hierarchy. This approach is cheap and creative.
7. Energy saving
Simple solutions that apply to the equipment of the production hall may in the long run come in favor. Installation of lighting or simplifying the cable system may turn out to be another building block in building up capital. It is important that such cutting of costs runs rationally, without depriving employees of basic tools and conditions. Pro-ecological initiatives are also a chance to obtain subsidies from the European Union. In addition, caring for the environment is an ethical attitude that can increase the value of the company compared to others, less friendly to nature, and it is always an additional chance to gain a potential buyer of products.
Presented above are just a few of the wide range of actions that can be taken to reduce production costs. Most importantly, everyone will find something suitable for their company, because there is no situation in which production could not be even better and more profitable. However, the fact is that you need to look for reasonable and safe solutions that will not affect the quality of finished products.
As you can see, there are many ways to reduce production costs. However, deciding which one to use may give you a headache, because the success of the method depends on the fate of the company. Cost optimization is a challenge, it can be worked out in several ways. We offer help and we offer professional consultation. Take advantage of expert advice and contact us at +48 517 827 436 or by email: firstname.lastname@example.org. We will create a unique plan specifically for your company to reduce production costs and increase productivity. We invite you to cooperation!