How to raise the profit margin of your manufacturing operations
Are you struggling to increase your sales in the manufacturing sector? We understand that, for today's manufacturing companies, the shortage of skilled personnel and the cost of implementing automation can hinder growth. In many cases, manufacturers have worked hard to modernize their approach to stay competitive and adapt to a changing industry, successfully increasing profit margins.
Not all companies have the capacity to make big bets with large acquisitions or product lines. Sometimes, it's enough to focus on gradual improvements to existing capabilities or adding new ones.
Improving profit margins can provide the necessary fuel to achieve this, either by increasing revenue or reducing expenses. The freed-up cash can be reinvested in capabilities that support growth.
According to Euromonitor International, after two years of disruption caused by the global pandemic, supply chain pressures are expected to finally decrease in 2023 — which is good news for the sector. Specifically, the improvement in production capacity, the replenishment of inventory levels, increased transportation capacity, and slower overall demand growth due to the economic slowdown in 2023 are expected to help rebalance supply and demand and alleviate supply chain issues.
The manufacturing industry involves a complex network of materials, labor, sales, distribution, and much more. Managing your finances for profitability requires a deep understanding of costs, inventory, overhead expenses, and more.
Recognizing that it's possible to get more out of your manufacturing operations is easy. Figuring out how is more challenging. So, before redesigning your sales processes to increase revenue or cutting fixed costs to reduce expenses, you need to know where your best opportunities lie.
Here are six areas of opportunity that we commonly see in the manufacturing space for increasing profit margins:
Use of metrics
To increase profit margins, you must measure your business's performance to identify inefficiencies. By measuring marketing performance, you'll have the data you need to make smarter decisions that drive improvements and growth.
Just as robotics and automation can enhance efficiency in the manufacturing process, a marketing automation platform can measure your entire marketing funnel, from lead acquisition to customer closure.
With all your data consolidated in one place, you can access accurate reports for every marketing element, including the website, landing pages, blogs, emails, lead capture forms, CTAs, and social media. Identify which traffic sources generate the most traffic, conversions, and customers, and tailor your manufacturing marketing strategy accordingly to increase profit margins.
Reduce customer acquisition costs
With rising marketing costs, customer expectations, and intensified competition, the cost of acquiring new manufacturing customers has increased in recent years. So, how does your manufacturing company respond?
Here are some ideas to reduce your customer acquisition costs:
Inbound marketing: While it requires an initial investment in an inbound marketing strategy, the long-term benefits far outweigh traditional marketing. Explore how inbound marketing can help your manufacturing company.
Increase website conversions by ensuring it's responsive and has optimized CTAs, landing pages, and forms that encourage visitors to convert. A/B testing can determine which designs, text, and placements work best.
Fine-tune and optimize: Analyze your current acquisition strategy to determine how much each marketing channel costs you. Reduce spending in areas that don't produce benefits and invest in others.
Enhance product cost calculation
Many manufacturing companies struggle to quantify the cost of manufacturing, engineering, and product delivery to their customers. Material costs, payroll, and fixed overhead costs are relatively straightforward. Technology has also made it possible to track direct labor on a job.
However, there are other, harder-to-calculate costs, such as unforeseen downtime and variable overhead expenses. Moreover, the rising material costs and additional surcharges that emerged during the pandemic may not necessarily be included in production costs.
A better understanding of actual costs will allow you to identify opportunities to raise prices or reduce expenses. From there, you can explore other areas for margin growth, such as inventory control and purchasing patterns.
Invest in automation
Automation can boost your profits by enabling you to do more without increasing your workforce. In this tight labor market, few manufacturers want to lay off workers. However, by automating hazardous, repetitive, or hard-to-fill positions, you can expand your existing workforce, produce more parts at a faster pace, and thereby increase profitability.
The key is to strategically invest in automation as a means to eliminate effort, improve accuracy, and reduce risks.
Improve logistics efficiency
Logistics efficiency is crucial to ensuring that your products are delivered to customers in a timely manner and at a reasonable cost. This can include optimizing distribution routes, inventory planning, and implementing package tracking technologies to enhance visibility in the shipping and delivery process.
Some ways to improve logistics efficiency include:
- Inventory planning software: These programs help plan inventories and optimize distribution routes by integrating sales, production, and cost data.
- Shipment tracking: A shipment tracking system allows your manufacturing and distribution company to have real-time visibility into where your shipments are and set up automated alerts for delays or delivery issues.
- Transportation and route optimization: Software can help your company plan and optimize distribution routes by incorporating information on cost, capacity, and delivery time, among other factors.
- Automation of packaging and labeling processes: Such a system provides your company with the ability to increase speed and accuracy, reduce errors, and improve overall efficiency.
- Cloud computing: Utilizing the cloud can store vast amounts of data, which can help your company analyze and optimize its logistics processes through the integration of artificial intelligence and data analytics tools.
Implement Industrial Internet of Things (iiot) capabilities
IIoT sensors and other technologies provide extremely valuable information about operational performance, such as equipment status, job progress, and piece-rate execution rates. All of this data can be used for historical comparisons between machines, parts, shifts, and employees to identify margin management areas.
According to Allied Market Research data, the global IoT market in the manufacturing industry was valued at $198.25 billion in 2020 and is projected to reach $1,495.65 billion by 2030.
From there, you can begin anticipating and eliminating equipment failures, downtime, and other sources of waste. The recovered productivity time can translate into increased capacity.
And the best part? You don't need to invest in a large-scale overhaul of your equipment to leverage the benefits of IIoT technologies. Gains can be achieved even with limited resources.
We understand that several of these measures may require a certain degree of investment. If your company needs to implement some of these capabilities, you must manage your cash flow carefully. To avoid a significant immediate expense, consider financing alternatives that can help you achieve this goal.
Look for a solution that allows you to generate corporate credit cards and make payments worldwide with sufficient credit days to help your company save money and reduce financial costs. This could enable you to invest in technologies and automated solutions to improve logistics efficiency, optimize the production process, and implement IIoT capabilities to enhance productivity and competitiveness. Ensure that this financial solution also includes advanced tools to keep you updated in real time on your company's expenses for better tracking and control of your finances.
In Summary,
To stay ahead of the competition and drive growth, your company must respond to the rapid changes occurring in the manufacturing industry.
Taking a strategic approach to improving margins is essential. What strengths can you leverage? What needs strengthening to better manage expenses? Only by having a clear and unbiased understanding of operations from multiple perspectives, including operations, finances, and information