7 Proven Ways To Reduce Your Manufacturing Cost

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Between supply chain issues and inflation, the cost of manufacturing has risen substantially since the onset of COVID-19. In a competitive environment, companies can only pass their increased manufacturing costs on to their customers to a limited extent.

This makes it imperative that companies producing goods take steps to reduce costs and protect their profit margins. While providing guidance to thousands of businesses concerning the Employee Retention Credit (ERC), we’ve observed that innovative companies have continued to prosper by reducing costs without affecting the quality of their products and services.

For manufacturing companies, we offer these seven proven ways we’ve found that you can reduce your manufacturing costs:


Reduce the cost of materials

Next to your cost of labor, material costs are probably your second biggest expense. It’s easy to get into a pattern of using the same suppliers and paying their quoted prices, but the time has come to reevaluate whom you’re purchasing materials from and what you’re paying for them.

Consider putting your standard materials out for competitive bid with several suppliers, including those you currently do business with. Reducing costs by checking out your supplier’s competition isn’t being disloyal; it’s simply good business.

Reduce labor costs

As unpleasant as it is, especially during challenging economic times, evaluating labor costs and making reductions through necessary adjustments is often necessary.

Instead of reducing what you’re paying hourly to your workers, evaluate if you have too many workers or if they’re clocked in and aren’t productive for some of the hours they’re working each week. Can you reduce hours and maintain the same output? Many companies find they’ve gotten a bit top-heavy with labor costs over the years.

Determine the best tools for your needs

Pencil, paper, and the occasional Excel worksheet aren’t sufficient anymore in our fast-paced business environment. Perhaps it’s time to look at deploying new tools to streamline your operation and reduce costs. Evaluate software for accounting, payroll, inventory management, and point of sale. Using the right technology and software can reduce costs associated with overstaffing, excessive orders for inventory, and more.

Manage inventory more carefully

Many companies tend to order more materials than they need and end up with costly materials sitting unused for extended periods. Evaluate your current inventory first. Do you have any materials you’ll never use that you can sell or write off?

Next, evaluate your purchasing process. Make sure you’re purchasing supplies and materials when you need them, not in anticipation of possibly needing them. This will improve your cash flow and reduce costs.

Review manufacturing processes

You may be surprised to find that you can reduce your manufacturing costs by improving your manufacturing processes. Though it may require some capital expenditures on your part, investing money in updated equipment and improving the efficiency of your manufacturing processes may be just what you need to control and reduce your costs.

Consider working with an industry expert who can evaluate your current methods and recommend improvements. They may also be able to handle the Request for Proposal (RFP) process for you, which will save you time and money.

Evaluate maintenance costs.

The cost of equipment maintenance can creep up on you and drive your costs up. Take a look at what you’re spending annually on maintenance. Are you better off paying on a “time and materials” basis, or would a maintenance contract work better for you? Negotiate with your service providers for better hourly service rates or put an annual maintenance contract in place.

Enlist the help of your employees

Many times, employees are best suited to provide cost-cutting ideas. Ask your workers for suggestions on how to dial back on waste and how to save time. Paying bonuses for ideas implemented is a great way to get their creative juices flowing.

Bonus: Apply for the Employee Retention Credit

Need funds to pay for new equipment or materials? If you haven’t already, look into the Employee Retention Credit for your business if you were negatively impacted financially during COVID. Schedule your free consultation with a Bottom Line Concepts expert today.

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