You don’t have to be a victim to being under your budget. With these three best spending practices, manufacturers can stay within their budgets, get ahead of the competition, and grow their companies.
Everyone, from individuals to families to large corporations, needs to have a budget.
This is especially true in manufacturing, since there are so many costs and variables to consider during production.
If you are in need of budget renovation—or restoration—then continue reading below!
Budgeting in manufacturing
What does a manufacturing budget consist of?
Budgeting in manufacturing is focused on any expenses involved in production.
It typically consists of three costs:
- Direct material
- Direct labor
- Factory overhead
Manufacturers create budgets to track the expenses associated with the production of a specific product.
For example, the production of an auto part would include these costs:
- Direct material: steel, aluminum, plastic, fiber glass
- Direct labor: technicians, painters, management, robots
- Factory overhead: electricity, gas, water, warehouse space
This is clearly not an exhaustive list of production costs—in fact, they are only small portion of the costs that manufacturers must account for when budgeting.
Other costs include the units that must be produced, benefits paid to laborers, maintenance for industrial robots, and more.
Potential for unnecessary spending
You don’t have to work in a manufacturing plant to know that spending can easily go wayward when it isn’t tracked carefully.
Even personal spending can quickly exceed income when costs such as rent, groceries, subscriptions, clothing purchases, and entertainment are left to their own devices.
Maintaining a strict budget is crucial for manufacturers to get the greatest return on their products. Otherwise, events such as unplanned downtime, equipment repairs, or hiring new warehouse personnel can significantly cut into the company’s bottom line.
3 best practices to manage a manufacturing budget
If you want to get ahead of the competition, grow your company, and increase your profit, then consider these three tips to manage spending in manufacturing.
We’ve said it before, and we’ll say it again: data is one of the most precious resources in manufacturing.
- Historical budgeting and spending data are excellent to measure your spending for this season of production. They give you a baseline as well as provide insight on where costs can be cut or where more money can be allocated.
- Additionally, you can use historical data to track increases in costs. You can calculate how much you will need to spend in materials, labor, and overhead and reserve cash flow for inevitable increases.
- Downtime, repairs, and maintenance are other important costs that can be tracked and predicted with data to prevent surprise expenses. This data can be sourced from connected equipment through IoT, allowing manufacturing to have an accurate idea of when equipment needs to be repaired or replaced.
With data, manufacturers can understand exactly where money is flowing and when irregular costs may occur.
Another important spending practice is to remain flexible. Manufacturing, like any other business, has ebbs and flows in production, labor, and overhead.
While a budget should be created for the reasons mentioned above, it should allow room for spending increases, as well as provide a plan for budgeted money that isn’t used.
Determine which costs are variable and which costs are fixed. Over the course of three years, the cost of your warehouse space may remain fixed, but electricity and labor will fluctuate. Knowing this, you can be prepared for any additional spending.
Also, being flexible with the budget provides manufacturers with room to grow. If a certain amount of budgeted spending money is left over, it can be allocated toward purchases like KUKA industrial robots or manufacturing equipment to enhance efficiency or employee training to boost productivity.
These investments will increase the company’s bottom line over time without cutting into revenue at the time of purchase since the money was already set aside for the budget.
3. Lean methodology
Finally, using lean methodology in production will help you manage spending in manufacturing. Cutting down waste in any form will naturally result in cost savings. For example, waste from overproduction or unnecessary labor can be eliminated, providing you with more room in your budget for flexible spending.
There are many forms of lean methodology, including these popular methods:
- 5S (Sort, Set in Order, Shine, Standardize, Sustain)
- Six Sigma
- TPM (Total Productive Maintenance)
- Cellular Manufacturing
- 3P (Production Preparation Process)
What they all have in common is reducing waste to a minimum to preserve materials and spending resources. The less you have to track in your budget, the easier it is to stick to it.
Research these lean methodologies and pick the best one for your company’s specific needs to start saving on waste.
Boost your bottom line with smart spending
If you aren’t already, consider using our three tips for best spending practices. You'll see considerable savings, make room in your budget for variable costs, and may even have enough leftover to invest in the growth of your company.
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