Budgeting production expenses is a high priority across the manufacturing industry due to the cost of materials, labor, and utilities. However, reducing overhead costs seems to be the greatest challenge for business owners as they try to maintain production quality. So, how can manufacturers maintain production and reduce overhead costs at the same time?
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What are Overhead Costs?
Overhead costs are operational expenses indirectly incurred through the manufacturing process. While direct costs might include paying for raw materials or labor to create parts, overhead costs strictly cover the necessary repairs, services, or energy used to craft parts. Overhead costs typically apply to three categories:
- Fixed costs—which are set at a constant monthly rate regardless of business performance such as business’ rent, mortgage, and government taxes.
- Variable costs—which change depending on business productivity and output. For example, if demand is high, overhead costs become higher when more power, heat, and labor is needed to keep production operations running.
- Semi-variable costs—which vary based on customer demand. Since semi-variable overhead costs follow company performance, these expenses cover any machine repairs, maintenance, or equipment rentals necessary to maintain production activity.
Ways to Reduce Overhead Costs
Due to the necessity of maintenance and utilities to continue production, many businesses question how to reduce overhead costs without compromising part design or quality. In doing so, manufacturers have sought to simplify their manufacturing operations to improve their budgets. At Breiner, we help reduce overhead within your company by streamlining our manufacturing process through these practices:
Used to control the transfer of inventory between a vendor and business, Just-in-Time (JIT) manufacturing helps reduce overhead costs by limiting the amount of material used for components. Structured to produce only what is needed, the JIT system cuts down on wasted materials. By acting according to business activity and production processes, JIT also helps reduce costs on machine repairs. As a result, maintenance, energy, and storage overhead costs for excess inventory are reduced.
Lead times measure the time between the beginning of the manufacturing process and the customer receiving the part. Shorter lead times hasten delivery and reduce overhead. Since overhead costs include labor and energy used to create parts, communication can clarify orders and swiftly share information between departments. Fewer delays improve lead times and create more efficient labor.
Reject Order Minimums
Many manufacturers require customers to buy a set number of parts, regardless of how many are needed. These are known as order minimums, and they force you to buy in bulk so the manufacturer can mass-produce parts in the name of profit. However, this practice dramatically increases your overhead due to surplus equipment and the storage or disposal of excess. That’s why, at Breiner, we will never force an order minimum upon you and only deliver what you need. Whether it’s only a couple dozen parts or just one, our manufacturing process delivers a better customer experience.
Total Cost of Ownership
Total cost of ownership analyzes hidden costs associated with buying manufacturing services or equipment beyond the price alone. This includes not only the purchase, but also the longevity and costs of operating the product. As manufacturers seek to reduce overhead costs, determining the total cost of ownership for essential equipment and maintenance services helps identify and upgrade inefficient machinery. Business owners cut costs and increase revenue by eliminating the need to store outdated equipment and reduce costs on additional labor or training.
Reduce Overhead Costs with Breiner
Overhead costs come in a variety of areas, from design equipment to an electricity bill. When you partner with Breiner, your business can effectively reduce overhead costs. With our assured delivery of custom parts, production will continue with ease. At Breiner, we pride ourselves in providing customers the parts, designs, and materials they need to continue production. Interested in learning about our services? Visit Breiner Innovative and explore our options today!