Companies that thrive in competitive environments have one thing in common: They understand the different factors that affect the price of manufacturing their parts and components. Thus, they actively streamline their production procedures to cut manufacturing costs, thereby increasing their gross profitability.
Factors that affect the cost of manufacturing
Determining the cost of manufacturing can be difficult because of the many factors that affect the final price. Most machining companies provide project estimates, but many of those quotes fail to represent the grand total. For any business seeking to cut expenses, that’s extremely frustrating.
While you’ll probably only get a rough idea of the final cost, understanding the different factors that influence that cost can help you budget and negotiate more efficiently. So, here are some of the things you need to consider first:
Different materials require different tools and techniques for the machine. The amount of waste created during production is a major factor as well. Plus, there may be an extra fee charged for sourcing raw materials if they’re not purchased from a vendor upfront.
The higher the quality of your manufactured components the higher the price will be. Parts that require extremely tight tolerances, intricate detailing, strengthening, or finishing can add to the final price. Better quality control costs more money but it ensures a more profitable product in the end.
Large orders typically cost more to manufacture because they require additional space, time, and resources to fulfill. However, some CNC machining shops offer discounts to their clients who buy manufactured parts in bulk or on pre-determined schedules.
Generally speaking, fast shipping on anything can drive up the price you pay for it. For example, last-minute manufacturing projects may involve an additional fee because of scheduling and/or staffing conflicts. In many cases, clients are required to pay a premium for rushed orders.
The level of skill required to manufacture your part can change the final price. If specialists are needed to complete your order, then a fee may be charged as a result. Plus, certain production stages require unfailing accuracy, and some materials are extremely difficult to work with as well.
Your manufacturing bill is also impacted by the different machinery required to make your parts and components. Each machine requires a different machinist and a specific type of material or technology. The operational cost of that equipment may affect the grand total too.
Projects that require special testing or certifications may cost a little more to make. High-accuracy manufacturing facilities must be audited to achieve an accredited credential. Therefore, companies using their services ultimately pay extra for that additional layer of security.
NOTE: Other factors that can sometimes alter the final price of CNC machining and manufacturing are the location of the facility and the law of supply and demand.
5 ways to reduce your manufacturing costs
Pioneer Cuts is honored and privileged to work with a wide variety of different companies in a slew of exciting industries. Our most profitable clients always focus on improving productivity by practicing flexibility to serve their sectors most efficiently. Meanwhile, these are the strategies we most often share with them to help cut costs on manufacturing:
#1. Simplify the Product Design
Did you know that production development comprises about 80% of the final manufacturing cost? In fact, nearly 60% of the price is affected by what happens during the concept/architecture phase alone. That’s because a component’s architecture determines the technologies, teams, parts combinations, and technique required to make it. Product design also impacts the procurement of vendors and materials as well as the ultimate project quality.
- Design parts with minimizing costs and material overhead in the back of your mind.
- Purchase some off-the-shelf parts to enhance production possibilities and lead times.
- Reduce the number of order and/or design changes you make.
#2. Use Lean Production Principles
You can implement leaner manufacturing standards to cut the cost of production by a significant margin. This generally involves adopting principles that result in decreased waste and increased labor productivity. It may also consist of reducing inventories, eliminating inaccuracies, or using scrap materials as often as possible. After all, the Lean Enterprise Research Center (LERC) says that adopting manufacturing best practices can result in a 60% increase in production efficiency.
- Understand the dynamics of transportation, processing, defects, and talent derivatives.
- Eliminate unnecessary expenses involving over-production, idleness, and long wait times.
- Use certified, sustainable, or reused materials for certain manufacturing projects.
#3. Standardize Some of Your Components
Standardized parts help cut the cost of manufacturing while also providing unique options for mass customization and/or built-to-order projects. This hack supports on-demand orders and short, unpredictable lead times as well. It helps companies procure specific components rapidly and saves them time on the concept/architecture phase. In fact, manufacturing standardization can affect the types of tools, techniques, materials, and certifications required too.
- Determine which of your component types can be produce with standardized manufacturing.
- Order larger quantities of only a few specific types of standardized parts.
- Utilize your additional time, space, and money to develop better marketing strategies.
#4. Prioritize a More Profitable Inventory
Focus your attention on manufacturing only the most valuable parts in your portfolio. This will help you simplify your operation even further. Plus, it can help free up additional resources for improving productivity and profitability on the back-end. According to a recent study, product line rationalization efforts can result in some surprising numbers. As it turns out, nearly 60% of a company’s inventory accounts for less than 10% of its total profit margin (on average).
- Conduct a PLR to eliminate excessive outsourcing, high overhead costs, and low-profit margins.
- Transfer surplus production capital into more sustainable manufacturing processes.
- Rationalize initiatives to determine the most profitable projects.
#5. Simplify the Supply Chain
Don’t forget to re-evaluate the efficiency of your supply chain while conducting a product line rationalization. Both old and new components should obey manufacturing best practices and offer a steady flow of income to the company. Having too many different product types or materials can disrupt productivity and impact profitability. Plus, complex supply chains and unnecessary outsourcing can drive up the costs at every turn.
- Establish better vendor partnerships with one-stop manufacturing shops.
- Use lean principles to manufacture your hard-to-make components and detailed parts.
- Prolong lead times or search for rapid CNC machining with fast shipping schedules.
The final verdict
Establish better vendor partnerships, simplify your inventory, use standardized parts when you can, and adopt leaner production principles to start saving money on manufacturing. Then, streamline your supply chain and begin planning a more worthwhile approach to the industry with the help of a Pioneer Cuts professional.