The question of how you can increase the profitability of production worries many entrepreneurs. This indicator is directly related to many factors: profitability, labor productivity, cost reduction, decrease in rejects, etc. One of the most important quality indicators of the level of profitability is the cost of production. The direct way to increase the profitability of production is to reduce its cost.
Instructions
Step 1
The economists calculated the production costs associated with the manufacture of parts. So, the cost of manufacturing a part is as a percentage: the cost of raw materials - 22%, the cost of equipment - 26%, the cost of wages of workers - 29%, overhead costs - 21% and the cost of an improvised tool - 3%. This, of course, is average statistical data, taking into account global experience.
Step 2
Let's consider all the factors influencing the cost price. It is clear that you cannot significantly influence the cost of raw materials. You can reduce the cost of personnel due to the qualifications of workers, which will negatively affect the cost, since the percentage of rejects will increase significantly. It will also not be possible to reduce the number of workers - this is due to violations of technology.
Step 3
As for the overhead costs, i.e. costs that are not directly related to production - maintenance, operation and repair of buildings, mandatory payments and social security contributions, maintenance and remuneration of labor of the administrative apparatus, etc. - then there is nowhere to save too.
Step 4
You have only two factors that you can influence in order to reduce production - the cost of improvised tools and equipment (machine tools). As for the instruments, even purchasing them at a significant discount or below the price range, you are unlikely to achieve significant cost savings, since the total share of the instrument's cost is small. The savings under this heading are not in any way effective.
Step 5
In fact, you have only one opportunity to increase the profitability of production by reducing the cost price - to increase the productivity of the equipment and machine tools used. Suppose the speed and production time of one part has increased by 20%. Overhead costs and personnel costs will be reduced by the same amount. The total savings for all items will be 15% of the cost of the part.
Step 6
This method of increasing production profitability is the most effective one. Even taking into account the fact that it will be necessary to spend some funds, albeit rather large ones, on the purchase of new equipment, they will pay off quickly enough. You can also increase productivity by increasing the number of manufactured parts or products per unit of time.
