How to reduce manufacturing cost? - Useful 13 ideas

Every business should keep eyes on financial transitions in uncertain economy circumstance. if your business is suffering due to inefficient manufacturing or disable to cost-effective way, so it is time to apply ideas in manufacturing processes.

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Cost control, cost saving or reduction in manufacturing cost is always challenge for manufacturing units, but it's possible but not easy to achieve target cost saving. Most business owners are preparing action plans, taking some initial steps and leaves away it when results could be very near. It is very unfortunate but still we have try to focus on target, but we have also have to clear our goal, see basic manufacturing cost reduction targets:

Aim to achieve.

What is manufacturing?

Manufacturing is group of processes that converting raw materials to final product by using various machineries, processes and manpower to meet specifications and customer requirements.
Manufacturing cost: Manufacturing cost is total of costs of all assets used in manufacturing processes for producing a product.
Generally, the basic formulation for accounting manufacturing costs is to sum of the expenses are:
  1. Labor cost;
  2. Material cost;
  3. Manufacturing overhead;
Because calculating total cost only considers direct expenses / cost used for manufacturing. All above cost is considered as general terms or not consider any specific industry so it's possible any industry having further expenses that directly effects manufacturing cost. let's see how to reduce manufacturing cost, here as below some ideas given are general to target small & middle scale industry:

13 Useful Ideas for Manufacturing Cost Reduction

  1. Manufacturing Design or Optimization
  2. Raw material Cost
  3. Labor Cost
  4. Manufacturing Overhead Cost
  5. Investment in manufacturing (Installation & maintaining machinery)
  6. Reduce Rework
  7. Waste Reduction
  8. Quality cost management
  9. Arrange Quantity center
  10. Analysis production data & processes
  11. Maximum Utilize resources
  12. Reduce internal transportation
  13. Miscellaneous

  1. Manufacturing Design or Optimization

  2. Manufacturing design impacts on each manufacturing phase and also on quality cost which direct impacting total cost. Manufacturing design is proactively conducted to optimize manufacturing functions that is raw material inputs to final product outputs. The optimization is another side of coin having similar impacts that help to reduce cost by systematically process optimization and defining cost centers. The manufacturing design & process optimization both are semantically perform the steps to implement product design, process design & setup processes to considering values of each processes to extract ways of cost controls. During the manufacturing design process needs to focus on the minimize inputs cost and maximum quality with efficient outputs is aim for the designing and optimization.

    In process optimization, ways to reduction of cost by identify alternatives to maintain quality and efficiency of performance with minimum cost. see below picture describe the diagram to help to decide how process optimization works:

    Process Optimization template | Process Optimization format | PDF | Excel | Example | Sample

    What should be process optimization criteria?

    Generally, process optimization criteria or objectives are defined to achieve the target, every manufacturing unit having similar criteria like:
    I) Maximum production in minimum manufacturing time: target or objective set to achieve maximize material production in a total unit time.
    II) As usual, manufacturing always wishes to cut of manufacturing cost, minimum production cost to achieve target through determine the least production cost with maximum profit by maximum utilization of resources.

  3. Raw material cost

  4. If you are manufacturer, efficiently use of raw material significant cost cutting by define cost center at each processes where raw material passing for various processes for bring in production lines. There are many ways to reduce cost of raw materials is applicable as appropriate business & internal processes, but commonly waste control in raw material processing is general, so my suggestion is concentrate on waste generates in raw materials processes (before Production processes) should analyze and identify possible ways to cutting the cost. basically following ways are general:

    • Supplier Management: Supplier change / raw materials prices down by negotiation, alternative supplier identification, or alternative material purchasing.
    • Raw material processes (before production): Skip unnecessary processes, if customers are agreeing for it, identify alternative processes which directly cost cutting, or design change or raw material processes to minimize costs.
    • Recycling: Identify processes that waste raw materials are possible to recycle which acceptable level to customer agreed to processing for final product.
    • Technology: try to improve, upgrade technology, advance technology uses in machinery and equipment setup to reduce waste of raw materials. (before upgrade any technology, analysis waste generating in various processes, upgrade machinery where maximum waste generating is recommended)

  5. Labor cost

  6. Labor cost is one of the way to reduce manufacturing costing, off course it direct cost reducing but my personal view is not always recommended, because cutting manpower can be impacting on routine planning due to regular practice of sharing works, ideas and related tasks that direct impacting on production volume and product quality too.
    If you really decided to cutting labor cost that needs to collect basic information / data from whole plant, analysis of each information collected, prepare labor planning & deployment labor, manpower management accordingly.

  7. Manufacturing Overhead cost

  8. For Reduce manufacturing overhead cost needs frequently review of processes, activities, and expenses records, the simple steps can reduce manufacturing overhead like:

    • Prepare records of overhead cost;
    • Review records;
    • Monitoring and tracking each expense;
    Control over head cost can only possible of effectively managed all the processes at workplace, and also important that monitoring the processes, activities, maintenance activities and possible causes of maintenance requirements.

    Tips: to reduce manufacturing overhead cost, step by step monitoring, reviews and control required, how? First of all, you have to collect information from raw material where all the inputs in production lines are effectively measure, and brain strong is there possible any substitute materials? If cost effective than you can use it, more internal transportation of raw materials can also helpful for reduction. Second is preparing budget of each cost ledger to effective use of amount in manufacturing and its possible to ask responsible for each expense, find way to minimize each expense to communicate with all employee related to appropriate workplace.

  9. Investment in manufacturing (Installation & maintaining machinery)

  10. Generally, investment of equipment and machinery that increasing efficiency to produce materials to save money as well as reduce cost to effective long term saving by time manner. Mostly wastage or time & materials are due to ether old machinery or not proper maintenance are performed, so it's time to implement replacement of machinery or proper maintenance to each equipment is necessary for cost reduction, little investment can gain your saving.

  11. Reduce rework

  12. Performing accurate rework procedure is not good, but elimination of rework possibility is good manufacturing practice. Ok but how to eliminate or minimize rework probability in manufacturing.
    How to reduce / eliminate rework possibility?
    First of all, we have to identify reasons of reworks. Following reasons general cause rework happen:

    - Improper / inefficient planning
    - Unskilled manpower
    - Communication gap
    - Ignorance of standard operating procedure
    - Raw material variation, substitution, and distribution error
    - Utility fluctuation

    Analysis of Rework Table Template | Rework Analysis table Format | PDF | Excel | Example | Sample

    To performing root cause analysis, it's easier to identify actual or base reason behind the product / process mistake or error, hence the analysis of rework table is important in case of identification of real reason behind the raise requirement of rework.

  13. Waste reduction

  14. Every manufacturing unit having similar issue with effective waste management and lack of effective techniques of waste reduction, here we describe short technique or process that help to your organization to control over waste generates from manufacturing processes.

    - Process optimization control over raw material accurate inputs in production lines.
    - Reduce variation in product sizes / measurement
    - Minimize manpower involvement where maximum waste recorded.
    - Increase frequency of maintenance tasks where machinery / equipment inefficient identified.
    - Reuse / Recycle waste materials.

    Waste reduction strategies Format | Waste Reduction Stragies template | PDF | Excel | Example | Sample

  15. Quality cost management

  16. Quality cost one of the important part of the manufacturing cost, actual quality cost or total quality cost are calculated as total cost spend to achieve quality of product where loss of quality that is cost of poor quality and quality control cost, same as assessment cost plus preventive cost are consider for find total quality cost.
    To control over the quality cost, rework, re-inspection processes should be controlled or defined to minimize quality cost. Generally, quality cost is increase cause of internal failures that is product standards, grades or any measurement issues, hence the proper manufacturing design, material planning, raw material selection can reduce quality cost.

  17. Arrange Quantity center

  18. Arrangement of quantity centers in the workplaces as per process flow, that does not mean warehouse of something special for storage, but meaning of quantity center is to manage each materials as per flow of processes and manage the documents accordingly to identify the wastages, scrap and process times to identify root causes of it, and also helps to understand which processes, which manufacturing stage or machine generating waste and scrap to easier for concern to control on it. Ok how to identify waste and scrap in the various stages? Simply there are simple way that help to do it. See below table:
    Simply, think the quantity center going to define for the piping manufacturing industry, so how to implement it. Quantity center table for Raw material & Storage area ("" Exclusive Example):

    Inputs: Materials Output: Waste
    Mother Pipes Cutting Edge, Cutting Waste
    HDPE Rappers HDPE rappers / Cover waste
    Binding wires Steel & Plastic Strips
    Nylon / Plastic belts Cutter Wastage

    As you can table above, its clear indication of waste generating from various sources, processes and materials can easier for control to define specific process. The reduction or elimination of waste is managing to effective define and implement plan at appropriate locations & processes.

  19. Analysis production data & processes

  20. To ensure that requirement for data collection are determined, data is collected and analyzed to demonstrate the suitability and effectiveness of production & processes and to evaluate where possible improvement in the manufacturing / production lines. First of all, you have collect right information from production lines, and analyze the information to keep objective of identify maximum cost lines and waste to determine proper planning to eliminate or minimize cost at appropriate location.
    How to manage it's all?
    You have to identify key processes measurements for all relevant processes and continually monitor process performance, on base of process performance you can get which manufacturing part, machinery, equipment performing with low utilization against its capability, and what reasons behind it, you have to identify root cause of particular problem with it, so you will get the facts by finding root cause of system utilization and production lines issues. Step by step processes verification and analysis is one of the simple way to reduce cost of manufacturing.

  21. Maximum Utilize resources

  22. Manpower and infrastructure is major resources of any manufacturing unit that planning and structural organized resources can help to reduce cost i.e. maximum utilization resources is finest example for the manufacturing cost reduction. Focus on key management resources like:

    a) Manpower
    b) Machinery & Equipment
    c) Manufacturing facilities

    Each resources should be well organized to conduct periodic reviews of resources requirements, and resources planning deployed accordingly.

  23. Reduce internal transportation

  24. This is simple but serious point that generally never any manufacturing unit are taken sufficient actions to minimize it, internal transportation is unnecessary increase manufacturing cost if properly infrastructure not planned or not pre-planned. Generally, internal transportation is hidden cost which directly you can't measure, you have to take loss of information, data, frequently monitoring, analysis and active brain storm needs to identify and record actual internal transportation cost. here I am providing simple example that will help you to compare or prepare flow diagram for your organization and take serious step accordingly. Here "" is in my personal researched as vast experience of industrial visits and practical working, See example:

    internal Transportation Format | Internal transport example | Internal transport template | PDF | Excel | Example | Sample

  25. Miscellaneous

  26. Time Management: Effective management of time of each resources available with manufacturing unit is necessary if you really control over the cost, resources time management helps to utilize resources, overall productivity and save money.
    Employee training: Fully skilled and trained employee are always assets of organization, employee training is important part of the human resources management because all the processes of manufacturing industries are managed through humans, so it's necessary that to avoiding or un-followed lake of procedures and instructions can cause poor quality material, damage machinery / equipment.
    Employee Motivation: Some organization are aware about employee motivation and declaring year / monthly award to motive employee in terms of accurate, hundred percentage policed works. Good performance always positive effect on the manufacturing and product quality which is indirectly positive effect on manufacturing cost.


The above content / ideas can applicable to almost any kind of manufacturing as well as processing houses. Just do a positive approach, clear objectives, analysis in right direction and implement practically at each stage of manufacturing as describe in this article. "" is always gives you positive guidelines what you really expecting from me.

First Published On Date: Sunday,April 09, 2017 8:00 PM

Author: ARUN RAVAL | Business & Systems Analyst