In the fiercely competitive manufacturing sector, micro-manufacturers are often left grappling with financial sustainability. The domination of large industries leaves these smaller entities under tremendous pressure, making cost reduction in manufacturing not just an option but a critical survival strategy. Read on to equip yourself with practical, implementable financial strategies to enhance profitability and overcome the burden of overhead costs. Here’s how to thrive among the giants.
What Are Micro-Manufacturers?
Micro-manufacturers, known as “Emerging Manufacturers” by GENEDGE, are small-scale manufacturing businesses typically with a workforce of 20 employees or less. These entities specialize in producing niche or customized products, often operating with a lean business model.
Their small size allows them to be nimble, adapting quickly to market changes, and their focus on specialized products often fills gaps in the market that larger manufacturers may overlook. Despite their smaller scale, their contribution to the economy and innovation in the manufacturing sector is a formidable force.
Connect Costs to Strategy
When you are managing a small manufacturing business with less than 20 employees, not all costs are created equal. That’s why you need to know the difference between costs that directly contribute to your competitive advantage and those that do not. These are known as strategic and non-strategic costs, respectively.
What are Strategic Costs?
Strategic costs make your product or service unique and greatly contribute to your value proposition. Investing in these areas can improve your overall profitability, even though it might not seem like cost reduction in the typical sense.
What are Non-Strategic Costs?
On the other hand, non-strategic costs are areas where you can cut back without compromising on the quality of your product or service. Identifying and minimizing these costs is a surefire way to increase your Virginia manufacturing profitability.
Here’s how the CEO of Frito-Lay did it.
Take the case of Roger Enrico, former CEO of Frito-Lay. He was faced with an increasingly competitive snack food market and rising costs. Enrico strived to separate strategic and non-strategic costs, investing heavily in areas that gave Frito-Lay a competitive edge, like product development and marketing, while cutting costs in less critical areas. This approach reduced overhead costs, maximized micro-manufacturing savings, and enhanced Frito-Lay’s market position.
Implement Lean Manufacturing Practices
What is Lean Manufacturing?
Lean manufacturing is a systematic approach to identifying and eliminating waste in the manufacturing process. It aims to streamline operations, improve quality, and increase overall productivity. Originating from the Toyota Production System, lean manufacturing centers on continuous improvement, or Kaizen.
It all revolves around Kaizen.
Kaizen encourages manufacturers to perpetually seek ways to refine their operations, promoting a culture of continual learning and improvement. This lens of constant scrutiny often reveals opportunities to eliminate wasteful practices, leading to reduced manufacturing costs.
Implementing lean practices allows micro-manufacturers in Virginia to increase their efficiency, leading to significant micro-manufacturing savings. By reducing waste, these manufacturers can lower overhead costs, increase production speed, and improve their bottom line. GENEDGE can help by providing in-person training and shop floor implementation consulting services in the following areas:
- Lean Principles
- Six Sigma Problem Solving
- Value Stream Mapping
- Kaizen/Rapid Improvement Events
- 5S Training/Implementation
- Kanban/JIT Material Flow
- Setup Reduction/SMED
- Total Productive Maintenance (TPM)
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Optimize Inventory Management
Improving the accuracy of inventory records, reducing held inventory, and increasing turnover are strategies that can lead to big savings that can keep micro-manufacturers ahead. Here’s some quick-fire tips:
Reduce your held inventory.
By trimming down your inventory levels, you mitigate the risk of obsolescence, decrease storage costs, and free up capital that can be invested elsewhere in your business.
Get more accurate.
Meticulous tracking and updated inventory records prevent overproduction and stockouts, saving both time and resources.
Increase your inventory turnover.
A higher inventory turnover rate implies you’re efficiently selling the product without holding onto excess inventory, lowering carrying costs and boosting cash flow.
Increase Workforce Productivity
Boosting workforce productivity is another effective strategy to cut costs in micro-manufacturing. A motivated, skilled, and efficient workforce reduces labor costs and enhances overall productivity.
Enhance your employee engagement.
Creating an engaging workplace environment inspires employees to perform at their best. It increases satisfaction, reduces turnover, and fosters a culture of excellence. Read more about how micro-manufacturers can retain their workforce in our blog!
Invest in training.
Regular training equips your employees with the latest skills and knowledge, enhancing their performance and efficiency. It’s an investment that pays off in long-term productivity and quality improvements. Learn more about GENEDGE’s online and in-person training sessions to upskill your employees.
Implement performance management systems.
Performance management systems help evaluate and manage employee performance, aligning individual goals with the company’s objectives. This leads to improved efficiency, higher productivity, and, ultimately, significant cost reduction in manufacturing.
Outsource Non-Core Functions
Outsourcing non-core functions involves delegating tasks that aren’t fundamental to your core business operations, such as IT, HR, or accounting, to specialized external agencies. This strategy frees up more time and resources for you to focus on core competencies that directly influence your competitiveness and profitability. Also, outsourcing can lower overhead costs and increase operational flexibility, allowing your business to better adapt to the ever-changing market dynamics. Overall, outsourcing non-core functions is a viable financial strategy for Virginia’s micro-manufacturers aiming to thrive financially.
Make the Move to Financial Success with GENEDGE
By knowing the right financial strategies for manufacturers, you’re well on your way to growing and turning a profit. These are important components of your business plan as you determine how to cut costs meaningfully, operationalize, and grow. Read GENEDGE’s success stories or contact us today to get started.
