All manufacturing companies aim to have the highest profit margins. From local start-ups to international conglomerates, it’s no secret that businesses aim to maximize profit, free cash flow and the return on assets. A few ways to improve profit margin comes from the demand side of the business such as expansion of sales, and two practices that have a multiplier effect on the bottom line: price increases and strict discounting policies. Another common and highly effective approach is to reevaluate and reduce variable costs.
Business expenses can be split into two categories: fixed costs and variable costs. Fixed costs are expenses that are independent of production volume changes. For example, factors like facility rental costs, insurance payments, and annual salaries will stay static regardless of product output. Conversely, variable costs will fluctuate in relation to changes in production volume. Generally speaking, when product output increases, so do variable costs like direct labor and raw materials
Fortunately, companies can protect themselves from these fluctuations by taking a few certain measures. Here’s how to reduce variable costs in three steps:
1. Lower Direct Labor Needs Through Automation
Manual labor is often one of the biggest variables involved in a business’s cost structure. When production increases, so do direct labor costs (i.e., the cost of hourly work). While the cost related to salaried employees is static regardless of output, hourly work will naturally fluctuate when production demands it.
For example, if a manufacturing company applies product labels by hand, any production increases will increase both:
- The time it takes to complete labeling
- The labor costs involved in hand-labeling
While hand-labeling often initially appears to be a cost-effective way to prepare products for sale without having to invest in machinery, as companies grow, this approach becomes exponentially less economical.
To reduce labor needs and increase profitability, labor automation is key. Installing a print-and-apply labeling system, continuous inkjet printer, or high-res case coder, like the Precision Series 72, on a production line decreases labor variability, leading to an overall reduction in variable costs.
2. Increase Profitability by Streamlining Workflows
Beyond automation, another approach to lowering labor costs is to improve workflows. Inefficient workflows will be filled with both time-consuming activities that don’t add value. Common examples include:
- Excessive set-up times
- Tedious material movements
- Unnecessarily segmented actions
In the coding industry, we frequently see these types of inefficient workflows. With hand-labeling, for example, companies often keep their physical labels in large backstocks. If this label inventory isn’t meticulously organized at all times, it can take workers an excessive amount of time to find the right labels for their applications. Additionally, many companies separate labeling from their main workflow, even when they have automated equipment.
Improving workflows will sometimes require upgrading equipment. The compact size and application diversity of thermal inkjet printers (TIJ) printers allow them to be easily integrated into an existing production line workflow. Through these steps, companies can reduce the time it takes to create products, increasing overall efficiency.
3. Reduce Variable Packaging Costs by Seeking Aftermarket Consumables
As with manual labor costs, when a business increases production, packaging costs increase as well. These costs include both the material(s) used to create the packaging and the consumables used to mark them with supply chain- and government-required markings like:
- Expiration dates
- Serial numbers
- Data matrices
- Batch codes
A simple method of lowering variable packaging costs is to use aftermarket printing supplies vs. Original equipment manufacturers (OEM). Aftermarket ink suppliers like InkJet, Inc. specialize in creating formulas that not only cost less than their OEM counterparts, but they deliver consistently high-quality results as well.
To demonstrate, we’ll compare Vidojet’s V411-D with InkJet, Inc.’s OS411. Both formulas are MEK-based, are used for the same applications, and offer equivalent drying properties. However, when one breaks down the bulk price of both formulas, V411-D is available at 16 cents per milliliter whereas OS411 is available at 8 cents per milliliter. Similar comparisons can be made between Videojet’s V706-D makeup and InkJet, Inc.’s OS706.
Essentially, by switching to InkJet, Inc.’s products, Videojet users can cut their consumable expenses in half.
Wondering How to Reduce Variable Costs in Your Operation? InkJet, Inc. Can Help
Lowering variable costs is a tried and true method of increasing profitability and setting the stage for company growth. With the steps outlined above, businesses can begin altering their workflow structures to better account for variable expenses like direct labor and consumables. However, implementing these types of changes can often be a tricky task. Fortunately, InkJet, Inc. is here to help.
For decades, we here at InkJet, Inc. have helped clients across industries to improve their operations. Whether you’re looking to upgrade your equipment, automate your workflows, or find a great price on aftermarket ink supplies, our team is ready to support you.
To learn more about how to grow your manufacturing business, contact us online today or call 1(800) 280-3245.