The Need to Lower Production Cost
There are two main reasons why any business, regardless of scale, would want to lower the cost that goes into the production of the goods it sells: to increase profitability or improve competitiveness. By reducing your production cost and selling the products at the same price, you’ll significantly increase how much you earn for each good sold. As for the latter, as more businesses come to compete with yours, one of the best ways you can stay competitive is by lowering the price of the goods sold, and lowering your production cost would be a good way to go about it; with a low production cost, you can either match your competitor’s prices or even offer a lower price tag.
Never Compromise Quality (or Quantity)
However, it’s important that you don’t sacrifice the quality (or quantity) of your products in an attempt to lower production cost as it could easily backfire. Your loyal customers would definitely notice the change in quality (and/or quantity) and may end up choosing your competitors’ products instead. As such, let’s take a look at various tips to help your business lower its production cost without compromising your products’ quality:
#1 Revisit Your Production: Optimize Raw Material Usage and Reduce Waste
It’s time to take a closer look at how much raw materials your production process uses up, and also take note of the waste produced. Basically, you’d want to get the most out of the raw materials that are used in the production. For example, you may be using too much of a certain ingredient in processing and end up producing a lot of waste. So ensure that your production is “lean” to minimize waste. You can do so by making tweaks with your formula and production process, or utilize better and more cost-efficient technology. Lastly, it’s also best to find ways to reduce plastic and materials used for packaging (again, without compromising quality or the protection it gives to your finished products). Consequently, the reduction of waste also helps you lower overall business costs as you’ll also lower the cost of disposing of these wastes.
However, no matter what you do, there will always be a waste. But, you can still take advantage of it through recycling. Try to find a way wherein you can re-introduce these waste materials back into the production process — not only does this lower cost, but it promotes sustainability. Additionally, for non-food products such as appliances and other items, you can make use of reverse logistics (product returns for disposal, replacement, repair) and utilize parts and materials from these products and use them to make new products (or use them in the production of your current goods).
#3 Substitute With Cheaper (but better or equal-quality) Materials
Tread lightly when it comes to this one. Many businesses substitute their current raw materials for cheaper ones that evidently reduce the quality of the finished products. For example, if you’re manufacturing products that utilize iron, you may want to consider swapping it out for a different metal (say, carbon steel) that’s cheaper yet offers better corrosion resistance. The bottom line here is that whenever you substitute raw material for a cheaper one, make sure that the finished product is of the same quality or better.
#4 Negotiate With Your Suppliers or Find Someone Who Can
Perhaps one of the easiest ways you can lower cost is by sitting down with your raw material suppliers and ask them if they can provide you deals and lower prices for products. Alternatively, you can hire or partner with procurement professionals to negotiate on your behalf or find other suppliers offering raw materials at a similar (or better) quality and at lower prices.
Lowering production costs without having to sacrifice quality or quantity can be tricky, but these tips can help you achieve such a goal to stay competitive, profitable, and even sustainable.