The manufacturing process is the core of the entire production process. The success and failure of the manufacturing process determines the success and failure of your overall production process. The costs for the manufacturing process itself do not consist of a single entity. It is greatly influenced by a wide variety of factors which can be simplified into three important parts; raw material costs, labor costs, and overhead. However, the three main sections are also influenced by other factors. They are connected to each other continuously where one part affects other parts and the part is also influenced by other parts.
Since the early 1900s, the industrial world has changed drastically and it continues to happen at least every few years. Your smartphone is actually the result of decades of technological evolution. And of course, the evolution of technology is inseparable from the development of the manufacturing industry and these developments inevitably affect the costs required in a series of manufacturing activities.
Along with the rapid development of manufacturing technology, products are also changing and consumer behavior is also changing. Today most people change their cell phones every one or two years. The changing demands of mobile phones (as well as other products) are a consequence of the rapid flow of the industry and the general decline in product prices. Keep in mind that technological developments usually result in price drops. This situation eventually prompted some companies to offer low-volume on-demand manufacturing services. Not every client needs products in very large quantities. Most clients today require very specific products in small quantities.
Most Startups Don’t Have Manufacturing Facilities
This is a fact! Most new startups do not have their own manufacturing facilities. That means they are very dependent on manufacturing service providers and to quote the paragraph above, they are very dependent on low-volume on-demand manufacturing services. These startups rely heavily on stable supply chain management systems and unfortunately, they are not familiar with such systems. If you are in a situation where you are managing your new startup, you should choose a manufacturing service that has a well-defined supply chain management system. This way you can increase your sales and profitability slowly but surely. You must understand that there is no point in a sudden but unstable increase in sales. It would be better if it happened slowly but steadily and safely.
Understanding All Manufacturing Costs Is Key
If you don’t understand all manufacturing costs, you can “get lost” and “lose your way.” Instead of planning your targets precisely, you can get caught up in unexpected expenses. This is not expected by any businessman. That’s why you need to understand all manufacturing costs and predict unexpected expenses in your future manufacturing process. For example, if you choose to apply 3-D printer technology, you should be aware that the application is more time-consuming but will cost you lower production costs than conventional CNC technology applications. That you have to consider, whether you can tolerate “slow production” or total production costs. You should also understand that production costs will be charged to the selling price. So adjusting between production speed and production costs is something that is very important.
The Following Are Examples Of Different Types Of Production Costs:
Labor costs usually include wages, taxes, insurance, and utilities. Labor costs can be divided into two; direct labor costs and indirect labor costs. Direct labor costs tend to be higher because they include administrative and overhead costs. Don’t forget about severance pay when you are forced to lay off a worker (according to applicable regulations).
Cost Of Production Tools
This includes a lot, even cloud-based solutions if you’re in “software manufacturing.” If you produce goods conventionally, the price of equipment or the cost of renting production equipment is a factor that greatly determines the selling price of your product.
Raw Material Cost
These costs affect the conventional production process more. You have to determine if you can get raw materials quickly and if possible cheaper than your competitors. If you get cheap raw materials but not so quality then it will reduce the quality of your product. Likewise, if you get raw materials with a process that is much longer than that of your competitors. Your beloved customers may switch to other manufacturers. That’s why maintaining the industrial supply chain is so important.
It can be concluded that manufacturing costs play the most important role in the whole production process. Understanding it and adapting to it is the key to your success. On the other hand, not understanding it and dealing with it incorrectly will ruin your production process and, as a result, destroy your business. Did you get some knowledge? Thank you for reading and have a happy day!