Cost Reduction for Manufacturing Companies

 By Marc Schwalb

American manufacturing companies are the heartbeat of our nation. These companies produce useful products and parts for products that stimulate the U.S. economy. They create jobs which provide opportunities for people in their surrounding communities. At the same time, adapting to a changing economy – along with a changing industry – has been crucial for the manufacturing sector.

Digitization has become more important to the manufacturing sector, and it has become apparent there is a shortage of workers who possess these skills. Companies are going to have to invest heavily in training to keep up with such advances. There are other trends, such as the increased use of the Internet of Things – and ultimately the roll-out of 5G technology – that will lead to an increase in data manufacturers must manage. Having the proper security is a necessary cost that will only continue to grow over time.

There is also a developing trend toward industry and academia partnerships. In the past, these relationships have been mainly between universities and large corporations. Now, for small-to-medium sized companies, seeking out such relationships may be advantageous in maintaining a competitive edge.

These are only some of the challenges facing the manufacturing industry in 2019 and beyond, but there is one constant among all issues – everything will have a cost. Whatever manufacturers are doing to compete and move forward with technology to increase efficiency and improve quality is going to come with a dollar figure attached. For this reason, minding the bottom line will be more important than ever. Manufacturers should consider seeking expertise from cost reduction companies that not only help to save money and time, but also create additional dollars that can be used to cover the costs associated with the ever-evolving industry.

The next logical question becomes – when does it make sense to outsource expense management? It first starts with the ability to self-assess one’s own company. It’s generally not the best practice to assume that costs are contained because of the information that is provided to you by suppliers. Consider the true objective of a supplier. Their job is to get business in the most profitable way possible, and to make it more profitable over time. There is nothing wrong with this approach. This is simply how business works and it’s a necessary aspect of free markets and capitalism. With this in mind, it only makes sense that employing a system of checks and balances is necessary to either provide validation that your pricing is in line with market standards or it may reveal otherwise.

Much of what determines the ability to negotiate pricing with suppliers effectively is data. It’s important to know what the typical pricing structure is with respect to each specific industry. Along these lines, access may be a key component regarding the ability to attain unpublished pricing or discounts that are attainable through buying groups or associations (which a company may not be aware exist). Furthermore, skill level is important to cost reduction negotiating. Has this been another task thrown onto an employee’s docket? Does the employee doing the negotiating not have the proper commitment, either because of lack of knowledge, lack of time or the feeling that the task falls outside the scope of their actual job responsibilities? There are many variables that could culminate into lost dollars if the process is not managed or trained in an effective manner.

A company’s bottom line is so critical because it shapes the direction in which a company can either grow, remain in a holding pattern or worse to slide backwards. Being profitable keeps key employees driving toward your initiatives. The feeling of working for a company that has the right leadership and the right direction is contagious and it can be felt throughout the halls of the office and on the plant floor. Part of that profit that drives an overall feeling of company success can be attained without more sales, but rather from finding that profit within the dollars that might be needlessly going outside your company to all sorts of different vendors