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In these tough economic times, it’s difficult to keep your company above water, let alone profitable. When business is booming, many shops focus on job completion and quality. When times are tough, the focus becomes finding new business opportunities. In both cases, you need to remember that you are in business to be profitable and must keep an eye on the details to maximize profits. Below are 10 opportunities to decrease costs, and therefore improve your profits, in any economic environment.
Utilize Employment Agencies
The expense of recruiting, training and developing staff can tax your budget and time. When the need arises for additional staff, an employment agency can be a good avenue to fulfill that need. The reduction of long-term risk and time commitment will outweigh any upfront costs.
Keep An Eye On Cash Flow
Today, manufacturing shops are having a tough time finding work, let alone receiving payment for their services. When a customer is extending their terms and not paying on time, they are negatively impacting your cash flow. When your company’s cash flow is negative, you will need to borrow from the bank and pay finance fees. Now is a good time to evaluate your current customers and see if some relationships might not be as profitable as you thought.
Reduce Labor-Intensive Operations
Within a manufacturing environment, some operations are labor intensive, which can increase cost very quickly. As you evaluate your manufacturing process, it is important to identify the labor-intensive operations that can be simplified or decreased. In recent years, for example, technology has allowed mold shops to reduce the amount of hand grinding or polishing due to high speed machines and unique cutter geometry.
A machine that is off is not making you money. Reducing machine downtime is very important to keeping your shop profitable. Historically, a shop will consider downtime when a supplier does not have the tools it requires in a timely fashion. It is also important to evaluate cutting tool changes, setup time, inspection, loading and unloading the machine, and maintenance in order to identify possible improvements. Loading and unloading a machine can account for 30 percent of a day.
Shopping for the best price can save you a few percent on your purchases, but over time it might not be a wise decision. The time it consumes to call several distributors and source items separately might not give you the return for which you are looking. By consolidating outside orders, your accounts payable and receiving workloads are condensed to manageable numbers.
Compare Net To Net Pricing
Often promotions or discounts draw a buyer’s attention. Also, buyers may receive personal incentives to get a “discount” off of their orders. If a buyer does not compare net to net pricing, he or she might not be receiving the best price. A distributor may show a catalog price far above manufacturer’s list price. If the manufacturer’s list price is $8.50 and the distributor’s catalog price is $15.50, is 35 percent off a good deal?
Through the years, many shops have switched from one tool to another due to operation capability, performance, pricing, support and more. Today, a single tool can accomplish many operations; Micro 100’s MillDrill can drill, mill, chamfer, spot-drill, countersink and perform well in multiple different materials. By streamlining your tooling you can cut down on your inventory and tooling costs.
Attack Manufacturing Costs
Many suppliers want to attack your cutting tool budget by offering discounts on your existing tooling. This method might help short-term, but the real opportunity is to decrease cycle time and increase productivity. Tooling accounts for 2 to 6 percent of overall costs, compared to manufacturing cost coming to around 74 percent of a shop’s cost. If you could save 15 percent, where would you like to begin?
This is no secret: Manufacturing shops have been reconditioning drills and end mills for many years. Often, the reconditioning tool service is where shops look for the cheapest price, with the perceived understanding the reconditioned tool will not perform half as well as a new tool. For the most part they are correct. In order to recondition a variable helix end mill or complex drill point, it takes more than a steady hand and a snag grinder. With that being said, several reconditioning facilities have multimillion dollar grinding machines that can recondition the tool like new at a fraction of the cost. These facilities are not the cheapest, but when your reconditioned tool performs as good as a new tool, isn’t it worth paying a little extra?
Subcontracting The Right Work
It is human nature to try and accomplish everything you can without relying on other people or manufacturing shops. Historically, your shop may specialize in a certain aspect of the manufacturing process, but you have an opportunity for growth if you expand. Historically, you have been in business because you are good at a certain operation, expanding is not always a wise option. Instead of investing and taking a risk in something in which you are not specialized, subcontracting might be a good option. Teaming up with the right shop can lead to a mutually beneficial relationship.
Putting these 10 steps to work in your shop will enable you to enhance the profit picture of your firm. And in these tough economic times, that improved profitability is crucial to your company’s long term survival and growth.