Ways To Reduce Overhead Costs in Manufacturing

Creating a manufacturing budget for the year involves many different aspects, such as material and labor costs. But there are overhead costs, too. Managers can overlook the possibility of cutting overhead costs when creating wiggle room in their annual projection. Anyone building a budget needs to understand what overhead costs entail. Here are some ways to reduce overhead costs in manufacturing.

What Is Overhead?

Overhead is any cost that isn’t directly related to labor or materials for production. Overhead is any indirect cost to keep your facility up and running. Factory burden is another colloquialism often used to describe these expenses. There are three kinds of overhead costs:

• Fixed: These are expenses that occur every month or year but do not change: mortgage and property taxes are examples.

• Variable: These costs will vary depending on your manufacturing output: utilities and trash service are included.

• Semi-Variable: These are expenses that increase or decrease over time due to subsequent business activity: insurance or a lease, for instance.

Upgrade Equipment

Retiring old equipment and installing more efficient machinery can reduce overhead costs. Old equipment tends to fail, creating fees for repairs. Selling the retired equipment as opposed to keeping it can also add more revenue. New equipment will deliver more output faster. Likewise, training employees on efficiency standards can also be a resourceful way to reduce overhead costs.

In-House Tooling

A considerable cost to manufacturing is outsourcing tooling. Creating in-house tooling would be another way to reduce overhead costs. It would assure accuracy, allow for quick adjustments, and guarantee shorter turnaround times. Outsourcing can slow down production on top of the exorbitant fees you’re paying for another company to create your tooling. It would be a semi-variable investment that you would reap the benefits of for years.

Reuse Equipment From Other Factories

Call around to other factories and check if any of their old equipment can be reused. Redeploying retired equipment can save you time and money instead of purchasing new equipment.

Determining factory overhead costs can be tricky. However, it’s possible to reduce them significantly by utilizing even one of these ways to reduce costs in manufacturing. The key is to consider what your output has been in the past and present; then, you can correctly gauge what you’re capable of doing in the future.