Part of running any successful business is financial management, particularly identifying where you can reduce unnecessary costs. This isn’t so simple when it comes to electronics manufacturing as there will always be cost involved in such material-heavy processes, but there are still ways that OEMs and CEMs can reduce the costs in the production side of their business.
If you think you are spending too much on manufacturing, here’s how to reduce your production costs.
Tail management is based on the Pareto principle that states that approximately 80% of the effects come from 20% of the causes. Effective tail management means paying attention to that 20% of your spend that accounts for 80% of your suppliers. Many businesses choose to ignore this ‘tail’ to focus on the suppliers who have the most effect on the business.
Taking the time to analyse your suppliers and optimise your tail spend can result in consolidating your vendors so that you can improve efficiency, only having to deal with one order, one invoice, and one delivery. You can also reduce the cost of your procurement process.
Find lower material costs
One way you may be able to reduce the production costs in your manufacturing is by sourcing lower-cost materials. This doesn’t mean you have to change the component you are using for a product, especially if nothing else would work, but you may be able to get the components you currently use for a lower cost.
If you always use the same supplier for your materials, the price they charge you is unlikely to go down. However, if you look at other qualified suppliers, they may be able to offer you a better rate on certain materials, especially if they think it might result in future orders.
Streamline processes and reduce admin
The more efficiently you run your business, the less it will cost you to do so, and streamlining your manufacturing processes will result in more profit. On the manufacturing side, you should work to eliminate waste, improve the technology and machinery you use and ensure staff are fully trained and all working towards the same goal.
On the other side of the business, admin can take up significant resources that will eat into your costs. Thankfully, by streamlining the manufacturing you can alleviate some admin as well, as you are less likely to encounter mistakes and hold-ups that can lead to extra paperwork.
Track and improve cash flow
Making sure you know where your money is going and what’s coming in is essential if you want to reduce production costs. Keeping a steady cash flow means you are unlikely to encounter shortfalls from common occurrences, such as late payment from clients. As well as your revenue, explore whether you have any assets such as machinery that you are no longer using that could be cashed in on.
One of the best ways to track your cash flow is to use professional software. Most services that offer this software automate a lot of the processes for you, for tasks that are otherwise unwieldy, time-consuming and vulnerable to error.
Consider restructuring your product to use a cheaper component
You may be hesitant to change your product once you have something that is tried, tested, and bringing in revenue, but it’s worth looking whether the product can be restructured to use a cheaper component.
We’re currently experiencing a shortage in many components due to the excess demand put upon suppliers by new and expanding markets, such as electric vehicles and smart devices. This is resulting in higher component costs and longer lead times. Seeing where you can swap out a limited-stock, high-demand component for a more readily available one will result in significant manufacturing cost reductions.