Rising Production Costs Are Eating Into Your Profit Margins

cost control

Rising Production Costs Are Eating Into Your Profit Margins

We are still in the middle of a very transformative period for the global economy. While economic confidence has been on the rise, vast industries continue to suffer and find themselves caught in a dire pinch due to the Covid-19 global pandemic. And one such industry that’s been feeling the weight of restrictions and shortages the most is the manufacturing sector. Production costs have been erratic and rising in proportion with increasing demand.

Given these circumstances, big names across different markets are making it their goal to drive down production costs, such as the recent statement from one of BMW’s board members to cut the production cost per vehicle. However, small businesses and medium-sized enterprises don’t share the same luxury as these industry pioneers. Being unable to answer this call to action of bringing down manufacturing expenses is eating too much of their respective profit margins.

Supply Chain Disruptions Beyond Your Control

One single-most noteworthy reason behind these rising costs and putting smaller businesses on the back-end is that present supply chain disruptions are beyond anyone’s control, especially companies without the extra-economic might to withstand and adapt to significant changes. And while many local and regional factors also come to play, the bigger picture remains bleak when entertaining the idea of greater economic recovery and increasing market movements.

  • Economic Activity Remains Low By Historical Standards: Firstly, economic activity finds itself stuck on the low-end of the spectrum, even despite the improvements we’ve made from last year’s debacle. Yes, there’s no denying that every step forward still counts as progress, such as the optimistic core retail sales report that came out better than expected. Still, the pace we’re going is less than desirable and indicates the need for more robust efforts.
  • Labor And Material Shortages Still Prevalent: Secondly, although some semblance of reopening the economy has allowed people to return to their livelihoods, we are still faced with labor shortages alongside concurrent raw material shortages. As such, given the interplay between low supply and extremely high demand, prices have been fluctuating at much higher than expected numbers and are forecasted to stay within this range until a more impactful change is achieved.

Cut Costs Elsewhere To Make Extra Room For Budget

cut costs

Nevertheless, given that cutting down production costs currently appears as a far cry from a possibility unless you can pull some strings with a few friends, we suggest that you cut costs elsewhere to maintain good quarterly sales performance. In fact, if you see each recommended step to the very end, you might even be lucky enough to find some extra funds on hand to bolster the budget for other projects.

#1 Integrate Digital Transformation Of Business Systems

Number one, the drastic transformation from physical spaces and systems to a full digital migration has yet to be fully realized, and countless businesses and enterprises are still utilizing outdated systems. Therefore, we strongly recommend implementing a legacy system that integrates and combines older and physical processes into more updated hardware and equipment. This will allow you to save more money long term. The cost benefits of going digital are unmatched. Many physical processes will soon become obsolete and cost you more in the process if you delay the notion of updating a little too late.

#2 Diversify Your Talent And Workforce

Number two, far too many businesses are operating with an overburdened workforce, and while the beginning of 2020 left us with no options but for lay-offs and leaves, the second half of 2021 could use a lot more hands on deck. You’ll be surprised at how big of an improvement in terms of sales performance you can make by simply reviewing which areas of employment in your business are currently in need of more talent. Plus, given that the option of hiring remote employees and outsourcing have become the new standard, the ROI on talent acquisition has never been better.

#3 Engage In Strategic B2B Partnerships

Number three, since it’s a fact that most businesses aren’t doing too well, it’s in your best interests to engage in strategic B2B partnerships that will help offset certain costs or guarantee you advantageous discounts and deals for both parties. Especially within the manufacturing industry, the use of different equipment overlaps, and you could procure quality industrial drum heaters, laser engraving machines, and other equipment at excellent prices.

Strict Cost Management Will Serve As Your Competitive Edge

Overall, since we find ourselves caught in quite the economic predicament in terms of managing production costs, only through strict cost management can we come out on top and use it as our competitive edge. So, implement the advice mentioned above to best suit your company’s needs, and you can rest assured knowing that your profit margins are safe and secured.

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