Manufacturing
9 Key Concepts for Success
Manufacturing companies traditionally have low profit
margins, but what can you do to set yourself apart from your competition? Here
are 9 Key Concepts to help you break the low margin barrier:
- Do you
know your direct material costs for the product you are manufacturing? If
you don’t know your costs, then how can you possibly set a sales price?
- You
need to understand your direct labor costs involved in producing your
product. How much do you spend in dollars to manufacture your products?
- Do you
have a clear understanding of your distribution and storage costs? Often
times we forget these two key and potentially high cost aspects to the
complete manufacturing and distribution process.
- Are
you focusing on your key competencies? Assess what you do well at and what
you can outsource to others. We all have to know when it is best to
partner with 3rd party sources and when it is best to have
in-house processes.
- Do you
do all parts of the process? Is it best to buy raw materials and do the
whole process yourselves or have others do parts and you just do the final
assembly? No one answer is the best for everyone, you have to assess what
your market offerings are, who the key players are, and the various
options on how to get the product from raw material to finished product.
- Do you
have unnecessary storage costs? Negotiate with your vendors for
just-in-time delivery so that you can minimize the storage of your raw
materials. It saves on insurance, storage facilities, labor and equipment
to move it around.
- Are
you getting the best vendor pricing? Track your purchases in an
easy-to-use accounting system so that you know the quantities of the raw
materials that you purchase so you can negotiate more effectively with
your vendors. Higher quantities should justify more price breaks…but you
have to know what you buy.
- How
are you managing the production process? Time is money. Are you using your
time as effectively as you could be? Is your production process
interfacing with your financial tracking so that you can do “what-if”
analysis?
- Do all
of your products produce profits? Sometimes we need to assess the makeup
of our offerings and ensure that we are focusing our time and energy on
the profitable aspects of our business and get rid of products that lower
our profitability and no longer make sense. Business is not static and you
have to be flexible to meet ongoing demands of your customers and your
shareholders.
The number one reason people
give for not monitoring their business financial position is because the
owner/management team doesn’t have “time”. There are multiple demands on all of
our time; however, lack of prioritization does not justify inattention to our
financial path. Prioritize the financial aspects of your business to help you
on your journey to success. Your business will repay your attention with more
dollars on the bottom line!
Pam Newman, President of RPPC, Inc., Author of Out of the
Red, and Host of Unlocking the Secrets of Your Small Business, provides Accounting
and QuickBooks Consulting for businesses to help them keep money from slipping
through their fingers. For more information, contact her at www.rppc.net or 816.304.4398.