In order to maximize profits and gain as close to an absolute advantage in your market as possible, it’s necessary for industrial-based businesses to delve deep (and often) into all the processes your company uses to manufacturer and/or provide its services to the market. Then find ways to improve those processes.
It doesn’t matter if your company manufactures electronics, automobiles, toys, food, etc. Nor does it matter if you’re in a service-based industry in the health care, energy, or research sector.
If you and your management team aren’t constantly analyzing and improving on all fronts, you’re hemorrhaging money that can at best lower profits, and at worst prevent you from hitting the company’s break-even point (BEP).
Following are some excellent tips all industrial businesses can use to improve their bottom line:
Hone Your Production Processes
The entire production process needs to be examined as a whole. When one part changes for the better, another up-line or down-line process may be affected for the worse.
For instance, say you currently have two operators on every box-making machine, and you feel one person could do the job just as well:
Jobs get cut or diverted to save money, and you feel you’ve made a great decision. Temporarily, money could be saved, but speed and efficiency could plummet due to the box-making process slowing down due factors like increased downtime (on that machine, along with those that come before and after), as well as increased Worker’s Compensation claims, operator burnout from increased workload, and damaged raw materials and unusable finished product.
Consider each decision carefully:
- Do employees have enough equipment to do their job correctly?
- Are you using outdated technology that makes the process slower?
- Is there a backlog of requests from supervisors or maintenance about issues that need to be fixed?
- Is the layout on the floor streamlined so each part of the process flows naturally to the next, without delay and with the utmost safety in mind?
- Do you have a high incidence of accidents and if so why – how can you fix it?
- How does the competition do it – what can you see in their process that could be implemented in yours?
There are tons of questions to look at. Never pull the trigger on an idea until consulting with the right people, to determine the “true” savings and efficiency increases each implementation will bring about.
Optimize Your Workforce
Some employees just want a paycheck, and that’s fine as long as they do their job and show up for work every day. When problems begin to appear, you need to have a process in place for determining if it’s you and/or your staff or process, or if an individual employee is in fact the problem and needs to be fired.
The latter is pretty obvious, but a good manager will always ask the right questions to determine if they’re giving their employees all they can:
- Are we paying them enough – salary, benefits, etc.?
- Are there incentives in place to encourage cost savings and peak efficiency – regular bonuses for saving money/time?
- Are employees ever asked how they feel about their job overall?
- Is there a non-biased HR system in place for handling suggestions and grievances?
- How do they talk about their supervisors – perhaps negative behavior isn’t the due to the team, but rather their leader?
Improve Energy Costs
The necessity to go green is obviously to protect our environment, but it’s just as important for saving money in your factories.
Most energy usage in the United States comes from industrial institutions. This means that while industry bears the majority of the country’s energy costs, it also stands to save much more than other businesses when green processes are implemented – even if the initial cost to implement seems too high to justify.
There are simple things all industrial businesses can do to start saving money on energy expenses:
- Install energy-efficient lighting.
- Optimize your rotary air compressor and fix leaks.
- Overhaul or replace aging heating and cooling systems.
- Create an in-house energy management team.
- Reschedule usage of high powered electric machinery to non-peak times.
- Adopt a continuous improvement strategy.
- Conduct a quarterly energy assessment.’
Scrutinize Inventory Carrying Costs Thoroughly
This is a simple, yet too often overlooked issue in manufacturing. Storing too much inventory for too long isn’t just a problem that affects big business either. All businesses of all sizes can fall into this expensive trap.
Consider your company’s carrying costs as they relate to inventory:
- Storage costs: ie., leases, rental fees, taxes.
- Depreciation expenses.
- Loss of capital income from carried inventory: ie., the holding capital could be invested rather than left collecting dust.
- Maintenance of warehousing and equipment such as lift trucks.
- Insurance on buildings, equipment, and product.
- Disposal costs: ie., garbage, etc.
- Overall labor costs to run all storage locations.
Carrying costs can go as high as 30 percent per year, meaning $3-million of carried inventory would be costing the company up to $300,000 per year (learn how to calculate carrying costs here).
Carrying too much raw material or finished product inventory not only leaves capital tied up, it increases the risk of loss due to employee error, acts of god, and theft. Streamline your inventory practices so you can respond to consumer demand quickly, without tying the books up with unnecessary expenses.
There are plenty of other factors that could be considered, depending on which industry your company operates in. The suggestions listed on this page will, in most cases, have the most impact in saving a company money by streamlining operations, cutting unnecessary expenses, and increasing efficiency.
If you have any further suggestions, feel free to share them in the comments.