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Factors Affecting Manufacturing Costs

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Manufacturing companies generally fall into two categories: consumer goods or industrial goods. Consumer-goods manufacturers generally make products that the average person regularly uses, while industrial-goods manufacturers generally make products that other entities use in their production processes. No matter what type of manufacturer you are, your business needs to be aware of all of the factors that can affect its manufacturing costs to stay profitable.

Design

The design has a huge impact on the product’s total cost. For example, suppose that a company designs a new product that uses six parts instead of seven. This simple change will reduce the amount of direct material and labor required to build each product unit. Additionally, this change can positively impact sales because customers may prefer products with fewer parts and feel that they are less likely to break down or need repair.

The effects of good design can be far-reaching because it can help reduce defects, increase worker productivity, and improve quality. Because good design is so important, many companies employ designers who focus exclusively on designing products and processes that result in lower costs.

Labor Costs

The cost of labor can significantly impact your company’s manufacturing costs because it’s usually one of the largest expenses. Labor costs are determined by how many workers you employ and how much you pay them, including wages and benefits such as health insurance, life insurance, and 401k matches. The amount you pay for insurance premiums for each employee can also affect your labor costs.

Other Factors

Other factors may affect manufacturing costs, such as exchange rates, duties and taxes, import tariffs, and the cost of raw materials that may arise due to supply chain shocks. In cases where raw material costs rise significantly, companies like to pass along the increase to consumers with higher prices. But if competitors can keep manufacturing costs low, a price increase could backfire and drive customers away. Other factors include distribution costs and sales incentives for distributors and advertising and promotional expenses.

Waste

In the manufacturing process, waste is usually unavoidable. If your product requires a lot of raw material and you don’t have a firm grasp on cutting or shaping methods, then a lot of waste can result in higher overall COGM. For example, if you use a computer-aided cutting machine (CAM), you can probably reduce the amount of unnecessary material waste by programming it to cut more efficiently.

Product development team at work

Get the Best Mechanical Design Services

If you’re on the lookout for the to help you recognize design errors and reduce manufacturing costs, then we at Connekt LLC can help. Our comprehensive portfolio of services includes rapid prototyping, 3D printing, FEA consulting, and other related engineering services to help boost your bottom line. Check out our portfolio here.

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