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10 Cost Saving Ideas to Reduce Manufacturing Costs in Your New Manufacturing Facility

April 19, 2023

 by David Collins III

Woman working on factory equipment

Are you planning to build a new factory but worried about the costs? In our recent blog post, "How Much Does It Cost to Setup your Factory? [Cost Calculator]", we provided a comprehensive breakdown of the expenses involved in setting up a manufacturing facility. While it can be daunting to navigate the financial aspects, there are ways to reduce manufacturing costs and build your new factory on a budget.In this blog, we'll share ten expert tips that we've used to assist clients. While some may seem obvious, you may be surprised that many companies must consider these strategies. From negotiating with suppliers to optimizing your factory layout, implementing recycling programs, and taking advantage of government incentives, these tips can help you save money and improve efficiency. 

10 Cost-Saving Ideas For Building a New Manufacturing Facility

  1. Establish a Budget and Stick To It

    Creating and adhering to a budget will help you avoid overspending and ensure you have enough funds to cover all necessary expenses when building a new factory. For example, if you have a target budget of $500,000 for setting up a factory, it's essential to break down the costs into categories like equipment, labor, and supplies. Don't pull these figures out of thin air; instead, create a budget based on a clear understanding of what you're trying to produce, how much you need, and what materials and labor are necessary to make it happen. Once your budget is set, you can also consider various financing options suitable for your operations and financial situation. At CMC, we typically conduct a feasibility study and layout before creating a budget for clients who need more knowledge or experience to do so themselves. This helps ensure the budget accurately reflects the client's needs and goals.

  2. Negotiate With Suppliers  

    When it comes to purchasing equipment for your factory, negotiating with suppliers can be a smart way to get the best deal possible. Feel free to ask for a lower price or extended payment terms. Suppliers may be in a tight spot themselves, so they may be flexible in making a sale. Building a solid relationship with your supplier can also help in negotiations, especially if there's potential for continuous business and ongoing maintenance agreements. Remember, a sold item is better than an unsold item, so don't hesitate to ask for a better deal.

  3. Buy Used Factory Equipment

    The costs associated with setting up a factory's equipment can be complex. To save money when setting up your factory, it's worth considering buying used equipment. For example, instead of purchasing a brand-new forklift, look for a used one that is still in good condition. However, before purchasing, it's essential to verify the equipment's condition by requesting maintenance records. One of the best ways to find high-quality used equipment is by looking for other factories moving or going out of business. Doing so can get a great deal on well-maintained machines that can last decades.

  4. Optimize Your Factory Layout

    Optimizing your factory layout is critical to maximizing your available space and reducing the wasted area. When setting up your manufacturing facility, ensuring that each piece flows logically and efficiently from one location to another is crucial. Every second spent moving the product is a second that could be used to add value, so it's essential to minimize any unnecessary movement. As mentioned in the first tip, creating a factory layout will help you understand what's necessary to make your products and also aid in developing your budget. By designing an efficient layout, you can maximize your space and resources while minimizing waste, which removes the 'Hidden Factory' within your manufacturing facility.

  5. Hire Local Factory Labor

    Hire local factory labor to save money on relocation costs and to benefit from their knowledge of the area. For instance, recruiting workers familiar with the local environment and culture is a good idea if you're establishing a factory in a rural area. If a critical skill is unavailable locally, you may need to look further afield. However, many companies and countries are increasingly wary of using outside workers, preferring to bring labor from their home country. For example, Chinese companies often use mostly Chinese workers for construction projects in Africa, despite the added expense. Nonetheless, using available local labor can be a great way to save money and build strong ties to the community.

  6. Consider Outsourcing Manufacturing Processes

    Outsourcing specific tasks or services is a strategy worth considering to cut labor costs. For example, suppose you require a critical but readily available part for production. In that case, it may be more cost-effective to outsource its manufacture to another company and bring it in only when needed. I've seen this strategy in action before. For example, when I worked at a factory that made guitar strings, it made more sense to manufacture the strings in the United States but to send them to China for packaging before returning them to the United States for sale. While this may seem extreme, it's a prime example of how outsourcing can maximize efficiency and reduce labor costs.

  7. Buy Materials and Supplies in Bulk

    Buying materials and supplies in bulk allows you to take advantage of volume discounts. For example, buying in bulk can reduce the cost per unit if you need to purchase raw materials for your factory. However, it's important to note that buying in bulk can mean something other than buying everything simultaneously. Instead, you can stagger the delivery of your purchases, minimizing the need for excessive warehouse space. By strategically buying in bulk, you can save money while ensuring you have the materials and supplies you need to keep your factory running smoothly. Just make sure to not accumulate an excessive inventory.

  8. Use Energy-Efficient Equipment

    To save on energy costs, it's worth investing in energy-efficient equipment when setting up a factory. For instance, if your factory requires a lot of energy, consider using LED lighting and energy-efficient HVAC systems, among other options. Every factory can benefit from investing in energy-efficient equipment, which can not only save money but also have a positive impact on the environment. In addition, using less energy can reduce your factory's carbon footprint, making it a more sustainable operation overall.

  9. Implement Recycling Programs

    Reduce waste and cut down on disposal costs by implementing recycling programs when setting up a factory. If your factory generates a lot of waste, you can establish a recycling program to repurpose materials and reduce the amount of waste that needs to be disposed of. For example, you could focus on recycling the packaging materials of your raw materials. It's worth noting that if your manufacturing process is producing a lot of waste, it's a sign that it may be inefficient and should be reevaluated, regardless of what you're producing.

  10. Use Government Incentives

    It's worth exploring government incentives to lower site development costs, or utilizing renewable energy sources. These incentives can include tax refunds, subsidies, or other financial benefits that can help to offset some of the costs of establishing a new factory. For example, our team - led by Cindy Jin - was recently able to assist Cyden in finding a location for their new factory and secure an impressive 80 million RMB tax refund and a government subsidy of 40 million RMB. While other sites may also offer incentives, it's essential to evaluate them carefully and determine which ones will be the most beneficial for your specific needs and goals.

How Can You Build a Cost-Effective Factory While Meeting Your Production Needs?

Building a new factory on a budget may seem intimidating, but with the right strategies, it's achievable. By following the ten cost-reduction methods we've shared in this blog, you can save money, reduce waste, and improve efficiency. Every step can make a difference in your bottom line, from negotiating with suppliers to buying materials in bulk, optimizing your factory layout, and using energy-efficient equipment. It's also worth exploring government incentives and hiring local labor to maximize savings. By implementing these tips, you can build a successful and cost-effective factory that meets your production needs and helps your business thrive.

factory cost calculator spreadhseet

Topics: Cost Reduction, New Factory Setup

David Collins III

David Collins III

David was a Senior Strategy Consultant for Deloitte, served in Iraq as a Special Operations Civil Affairs soldier, and as a Governance Advisor to the Afghan Government with the Department of State. At CMC, David advises clients on strategy and investments.

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