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Facilities manager considering new cost containment strategies for manufacturers

Quick Guide to Cost Containment Strategies for Manufacturers

They say it takes money to make money. But that doesn’t mean that throwing money at your manufacturing business is the key to successful growth. Instead, the money you spend must be carefully budgeted through robust cost containment strategies for manufacturers. 

Many businesses struggle with trying to cut costs because many cost-cutting measures have a detrimental effect on profit. You can’t simply slash your advertising budget without consequences, for example. But with producer prices over 11% higher than they were this time last year, cuts need to be made somewhere. Thankfully, there are plenty of areas where cost containment strategies for manufacturers are possible without impacting your bottom line. 

In this post, we’ll examine a few approaches to cost containment for manufacturers, where manufacturers can cut costs, and how a cost containment audit fits in.

What Is Cost Containment for Manufacturers?

Cost containment is about strategically finding a way to save your business money in a way that will have as little a negative impact as possible on your bottom line. This need may arise as a result of increasing producer prices, as a need to free up more money to facilitate additional growth, or just out of the desire to increase profits. Regardless of the reason, cost containment requires a close look at your company’s finances and processes.

Developing Cost Containment Strategies for Manufacturers

Before you begin to look at what costs you might be able to cut, you need to develop a strategy for planning your cost containment efforts. One of the biggest things to understand is that cost containment must become a part of your company culture. It can’t be limited to something you do every once in a while. 

The steps below will provide you with a good starting point for cost containment strategies for manufacturers.

1. Prioritize Key Expenses

The first step is to go over all of your existing expenses. As you write down the expenses you are currently incurring, rank them according to their importance to your company. Some expenses, like rent, are mandatory. Others are discretionary. By ranking these expenses in the order of their importance, it’ll be easier to understand at a glance where you can make cuts.

2. Focus Your Spending

Next, go over each item on your list. Even the mandatory expenses may be able to be reduced. You have to keep the lights on. …But are you doing everything you can to operate in an energy-efficient way, or are you throwing money at the electric company? Any discretionary expense should be a candidate for reduction, if not elimination. The goal here is to cut areas that aren’t crucial to core business operations. Only after that proves to be insufficient to meet your budgetary goals do you need to start cutting where it might hurt.

3. Get Everyone on Board

Cost containment is something that everyone in the company must be aware of. Department heads should be aware of the company’s new focus on cost containment and must be willing to do their part within their department to help make it a reality. Employees that are wasteful of supplies or utilities should be encouraged to be more prudent in their usage of those things. Help everyone at the company understand why cuts are being made to help increase compliance.

Ways to Cut Costs

Floor manager implementing cost containment strategies for manufacturers to reduce waste

Now let’s get down to the areas where you can actually begin to look for money savings. After discretionary spending has been taken care of, there’s still likely a lot of wasted money at your company that can be recovered with some changes in mindset and procedure. 

Some of the most common areas where businesses waste money are listed below. Pay close attention to how efficient your company is in these areas and make adjustments as needed.

Utility Expenses

This is a big area that gets ignored by most businesses. It’s easy to assume that your utility bills are all on the up and up and that you owe exactly what’s on the bill. The problem with this assumption is that around 80% of utility bills contain errors of some sort. Even without being wasteful with their utilities, many businesses are overpaying on their bills. In addition to having employees cut back on wasteful utility usage, hiring a company, such as Util Auditors, to perform a utility bill audit can help unlock additional savings. 

Inventory Management

There are many savings to be had by better managing inventory. When you carry too much inventory, storage space costs are higher; so are the upfront costs of stocking that inventory. Worse, if the part being stocked becomes obsolete before it’s used, that money is wasted. Having money tied up in long-term inventory also carries an opportunity cost, as you can’t spend that money on potential growth opportunities. Implementing a proper inventory management system can save you tens of thousands of dollars.

Equipment Maintenance

If you look at your company’s dental plan, you’ll likely find that the insurance company most offers free cleanings. They aren’t doing this out of generosity. A person who receives regular cleanings is less likely to need expensive dental repairs later on. 

Your company’s machinery is like your teeth. Spending a little to maintain them properly can save you money on unexpected repairs. If you’re spending a lot on equipment repairs, you can’t avoid paying those costs when they come. But better preventative maintenance can reduce their frequency and is a crucial element of most cost containment strategies for manufacturers.

Let Util Auditors Help

We can’t go over all of your finances for you, but we can help you save money on utilities. Best of all, we can do it at no upfront cost to you. Util Auditors will take a look at all your utility bills and the contracts associated with them to find any errors that may be costing you money. Your business may be overcharged due to faulty meters or charged at the wrong rate. You might also find yourself paying extra due to broken machinery. 

Whatever the cause of extra expense, our team of experts will find it. If we don’t find you money savings, you don’t pay. If we do save you money, you’ll simply pay a percentage of the savings. To learn how we can help with cost containment strategies for manufacturers of all types, check out our list of services.

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