Successful manufacturers know that the key to sustainable growth is increasing profits, not just revenue. Let’s take a closer look at some ways you can boost your bottom line.
Reduce overhead
Increasing profits doesn’t always mean plant layoffs. Often cuts can be made in overhead without affecting employee morale. Overhead costs include utilities, rent, marketing and customer service. For example, it might be more cost effective to outsource customer service or shift marketing efforts from direct mail to online or social media campaigns.
Not sure where inefficiencies exist? Ask people inside your organization. They know how your business operates and see inefficiencies on a daily basis. Plus, employees who help devise cost-cutting measures tend to be more vested in seeing them through.
Find opportunities to renegotiate
Manufacturers typically have many contracts with suppliers, lenders, lessors and insurance providers. But they may underestimate their negotiating power in these contractual relationships. Often, you needn’t wait until contracts expire to revise the terms to be more favorable to your business.
Take insurance policies as an example. There are many insurance carriers and types of coverage. An insurance broker can help “shop” different insurance companies and evaluate the options so you’re not paying for nonessential coverage or leaving gaps in your coverage. Look beyond business property and liability products and evaluate cybersecurity and employee health care policies. Today, insurance providers may offer more cost-effective alternatives and bundling options compared to a decade ago.
Likewise, evaluate your loan agreements and research what competitors offer. You may be able to negotiate more favorable terms with your lender(s) and eliminate onerous loan covenants that may be holding back your expansion plans.
Invest in new equipment
Every machine in your plant has a useful life that may expire while the asset is still in service. That is, old equipment may be slow, break down frequently, and require excessive amounts of power and labor.
Evaluate each fixed asset, especially those that are fully depreciated, and assess how next-generation technology might improve productivity. In some cases, labor-intensive equipment can be retired and replaced with machines equipped with artificial intelligence (AI). In other cases, energy-efficient “green” machines may be able to lower electricity bills and reduce materials waste.
Strengthen your workforce
Are the skills of your workers sufficient? Some employees may benefit from additional training courses to improve their technology skills and teach them how to use new equipment or production techniques. Improvements in skills and job satisfaction can, in turn, lead to higher productivity.
In other cases, you might consider new hires to infuse your organization with fresh ideas. For example, a new plant manager might have novel ideas for how to reorganize the production line or organize the warehouse to reduce queue time and improve productivity. Or a new controller might recommend accounting or inventory tracking software that reduces overhead costs and administrative headaches.
Review your business entities
Examine your business entities to determine whether all of them have a purpose. In some cases, you may decide to eliminate a business entity to reduce administrative costs and complexity.
On the flip side, some companies are too simple. Assess whether any business lines or assets expose the rest of the organization to unnecessary risks. You may decide to add a business entity to safeguard your core operations from risk.
Focus on streamlining operations
It’s easy to focus too intently on the top line of your income statement (revenue). But it would be foolhardy to not continuously look for ways to operate your manufacturing company more efficiently. Doing so can reduce spending and increase profits. Contact us for additional solutions for increasing your profits.