Limiting Profit Erosion in Manufacturing

Everything about operations can impact profitability with a manufacturing company, and understanding value creation and value retention can guide you on implementing several manufacturing best practices that improve company performance. Improved performance usually leads to improved profit margins and higher stakeholder satisfaction.

Maximizing Value

Prior to negotiating contracts with clients, a company can establish value for the product. Though the aim of marketing efforts and sales strategies is to secure new business and orders, there are some leads and sales that are not worth the investment. Contract opportunities need to be evaluated for the resources that may be consumed for the life of the relationship, whether it be legal concerns, warranty issues or the long-term cost of materials. Assessing the cost position includes evaluating both supplier and subcontractor expenses as well as the scope of schedule, delivery and any other relevant resources. One of the manufacturing best practices should be a proposal review that includes a bid or no-bid meeting to discuss these costs. By reviewing these areas of expense or potential costs, a company is able to establish value for the product prior to a contract agreement.

Maintaining Value

While pre-contract negotiations help create value, the established value must be maintained through the delivery of the product. The processes that are in play can also create value if best practices are followed for labor costs, resource appropriation and logistic needs. Most often, the industry standards are the guidelines for processes and procedures, yet there is often room for improvement. Each order should be carefully reviewed before production begins and before a customer is assured their order is acceptable. The review should continue with product delivery timelines and transport methods.

By taking proactive control of your production costs prior to establishing a formal customer contract, you can do a lot to limit profit erosions. Implementing these manufacturing best practices will streamline your operations by reducing costs, increasing production and ensuring customer satisfaction.