Regardless of your business's product, one of your main expenses is likely the materials you must use. As a result, this impacts your overall profitability. The question is, how can you reduce your material costs without impacting the overall quality of your final product and changing what customers expect.
Like other business cost-cutting measures, if you want to reduce your goods' cost, this begins with a comprehensive analysis of the direct and ancillary ways that your base materials eat up your cash flow. From the raw materials to the casting process, keep reading for some helpful tips to reduce your business's material costs.
Replace High-Cost Materials with Lower Cost Options When Possible
It is possible to manufacture products using many different materials, based on manufacturers and market requirements. Technology is being improved continuously, which has resulted in better materials being produced, prices going up and down as political goals shift, and a change in processing methods.
When thinking about changing the materials used for certain products, be sure to pay attention to all related factors. For example, if you substitute carbon steel for a lower cost stainless steel, you will save money initially, but it also reduces overall corrosion protection. This could be an appealing selling factor for buyers.
Also, changing materials means changing how you manufacture products, in some cases. It can increase labor costs and cycle times. Changing the product's composition may be worthwhile sometimes, even if the material costs are higher if the production process is simplified.
Product engineers will usually design items without considering the consequences of the manufacturing process. This is especially true regarding how non-standard purchase units of weight, volume, or size have to be modified to create a product. Usually, production methods are established to help reduce the highest production component – either materials or labor – when the method is established.
For example, if the raw material cost is low, the total volume of the excess material, also called "scrap," is not often considered an important factor relative to labor costs. As time passes, though, the prices for labor and materials may shift. This can alter the ratio between the two elements and their related cost. This means that the cost of the scrap material may reach a point of being excessive. By modifying the product designs and changing production methods, it is possible to utilize standard units of raw materials, which will reduce the costs of excessive scrap.
Eliminate Unneeded Product Features
It is well known that custom products are more expensive to manufacture than mass-produced products. Any feature that is considered non-standard and that takes another step in the production process increases the cost.
Take time to get to know a customer's motives for purchasing for product manufacturing – are they purchasing the items because of their low cost, unique look, high-quality design, or another reason? When you can determine what is essential to your customers, you can determine what is not as important, reducing total production costs.
Take Time to Negotiate
The amount of profit you can earn is dependent on if you can get the highest price possible for your products and pay the lowest price to your vendors and suppliers. Each participant in your product supply chain is searching for business and will take extraordinary and unusual steps to make or to save a potential sale. This is especially the case in a bad economy.
Request a discount each time you get an estimate or place an order. Be sure to keep asking for this until you have placed an order. If you do not receive a reduction in the initial price, ask for better financing terms, prepaid freight shipping, or another perk. When you take the time to negotiate, you will maximize your position as the buyer. This is something your buyers will do, as well.
Leverage Your Suppliers
Sometimes, doing some research will help you find new suppliers who offer similar products to what you are already purchasing. Figure out if there are different features between the suppliers and if the differentiating features will benefit you or your customers. For example, will it be worthwhile to have faster delivery if you receive favorable financing for a slightly increased price? If this is not the case, buy from the supplier that offers the product to you at the lowest price.
Using the tips and information here makes it possible to reduce costs while still getting the supplies you need. Keep in mind, there is no magic formula for this, but when you use the tips here, you will receive huge benefits that your business will benefit from in many ways. Being informed and understanding what options are available to you will help ensure you make the right decision regarding the materials that you use for product manufacturing.