3 Places to Cut Costs, Without Hurting Production

Manufacturers who are loosening their purse strings may soon have reason to tighten them again.

On the one hand, the industry’s engine is revving up: In July, for example, manufacturing expanded 3.4 percent, according to the Federal Reserve. Still, we’re not up full throttle: IHS Markit data from the same month raises questions about a potential downshift.

It’s time to get in gear: With COVID-19 cases still increasing, the old adage about saving for a rainy day has never seemed more relevant. But how can manufacturers who have already shaved expenses find additional sources of savings without affecting either production or product quality?

One way is to look harder at the costs of essential services—such as telecommunications/networking, payment processing, small package delivery and electronic logging—which can represent 15-20% of outside expenses

Telecommunications/Networking

Make no mistake; the right telecommunications/networking services are essential for manufacturing growth. In the plant, adequate bandwidth is critical for preventing costly downtime. For that reason, many plants have their own dedicated fiber—but may still be paying too much for it. There are multiple and sometimes lesser-known providers who specialize in meeting manufacturers’ stringent demands, and their pricing is highly competitive.

Another area to double check is mobile/wireless plans—especially if more administrative staff are working from home. Getting everyone on one wireless billing plan—carefully constructed to eliminate unnecessary features—can offer significant savings.

How can manufacturers build on these reduced expenses? If each plant has an individual phone system based on copper lines, it’s worth considering one integrated, cloud-based Voice Over IP (VoIP) system as a replacement. The economy of scale and increased efficiencies will likely deliver an even larger cost reduction.

Manufacturers that prefer to keep all their existing arrangements intact should still put recent bills under a microscope. Because phone companies’ services, plans and special promotions are constantly changing, it’s not uncommon to overlook billing errors. One plant could be paying for a service it previously cancelled; another two plants could be paying the same amount when one location’s plan actually has more features. This is the time to scrutinize everything.

Payment Processing

For manufacturers that are paid predominantly by cash or check, there are ways to service their few customers who use credit cards more cost-effectively. One option is to move to virtual terminals. Not only will this eliminate physical equipment costs; there will be more opportunity to enter in additional customer information for each transaction, which should also reduce expenses.

For manufacturers who sell to distributors via an online catalog, this is also a good time to stay on top of best practices for securing payment data, as advanced by the PCI Security Standards Council and its member companies. IBM Security has found that the average cost of a data breach for organizations worldwide is just under four million dollars. This is the time to take preemptive action and avoid those losses.

Other Services

What else can manufacturers do?

Small package shipping: Ensure that fuel surcharges align with current rates, which have decreased. Also, be vigilant about shipments arriving when promised; not only is this important for maintaining customer loyalty, consistent lateness is cause for refunds.

Electronic logging: With a large landscape of providers, manufacturers have an opportunity to hone in on those with unique benefits, such as tailoring services/pricing for smaller companies, and integration with other software systems.

Whatever savings strategy manufacturers mold, there will always be room for reconfiguration. COVID-19 is sure to drive vendor innovations that open up new ways to save. By staying on top of the “assembly,” companies are sure to help their bottom line.

Seth Tenenbaum is a Boston-based Strategic-Partner with Schooley Mitchell, the largest independent cost reduction consulting company in North America, with offices from coast-to-coast. Since its founding in 1998, Schooley Mitchell has helped 23,000 organizations reduce essential business expenses by an average of 27-28 percent, delivering over $360 million in documented savings. Mr. Tenenbaum can be contacted at [email protected] or 617.655.6505.