Reducing Plastic Product Manufacturing Costs
Microdyne is a contract plastics manufacturer. This really means we build custom products to the customer’s specifications. This approach is wonderful to get the exact product into the customer’s hands. However, many of our customers are not professional designers, engineers or production professionals. As a result many of the products could cost less than they do.
Because of the Internet many of us have fallen into a “quote” mentality. This pre-supposes that what you are getting is the same. . . a huge assumption for contract products. If you are a buyer of parts, or finished goods for your company, you have many pressures getting products into your warehouse. As you know this is a formidable job requiring a sense of the market, your company’s specific niche and positioning, as well as more technical issues in design engineering, supply chain, materials science, and packaging. It can make your head swim.
It is no surprise then, that it is an easy task to just spell out the specifications, and pit one company against another and pick the lowest price. Sure, you value good customer service, and expect quality (as if it was a commodity), as well as fast turnaround. The interesting thing is that many manufacturers settle into the same place, they plug the numbers and send you a cost for the requested quantity. You may select between a range of quantities, which you plug into cash flow and inventory considerations along with coordinating all the components that make the product market ready.
So, let’s consider the other approach. Control over the process allows more creativity both for you and your vendor. If you shared the issues you are grappling with, perhaps the manufacturing team could help you lower your costs, and adjust the attributes of value that your customers expect.
This approach just may help your overall team expand your offerings. Consider this:
According to some manufacturing authorities, the design can determine 80% of the product cost! It is very hard to remove costs after the design is completed, so thinking about cost upfront makes sense.
A slightly different but relevant discussion may be what is the right final price to the end user. Most manufacturing is based on what is believed to be the lowest cost, however many examples exist where quality was over engineered, aesthetic design was under considered, and the market knowledge was cursory. Spending too much time saving a penny, may not really help sales or profits, consider what the really important characteristics really are.
Naturally the aesthetic design is critical for most products. In a quest to find that design, production considerations can be overlooked, this can increase final cost. The higher cost then reduces the selling volume. When the selling price and other associated costs are considered, along with cost, this mistake can be avoided, while adding to the creative process.
When the concept is complete, simplifying the design by reducing the parts intersects with cost. When an elegant product is developed it tends to be higher quality inherently. When it is done right the first time, later issues melt away.
Allowing a longer lead time for planning, development and production can smooth out the whole process. Change orders are expensive for you and your supplier. Plan your product inventory requirements carefully and consider the costs of warehousing and cashflow as part of your price reductions. Many buyers have no flexibility on the issues of finance and warehousing, you are just told to lower the inventory and increase turn over, (this is a basic principle of CFO’s today,) but your lack of flexibility here is just one reason why your product costs may be higher. Of course risk of product obsolescence is an issue, but this is your problem and putting demands on suppliers is not really their problem but behind the scenes, it raised your costs. Good planning, and adequate time can be your friend regarding product costs.
These are just a few considerations. But the overall summery is that wringing cost out of your products needs a strong partner who will legitimately work with you to find cost savings, and fit them into a schedule that you and your CFO can deal with. Here are a few considerations that will help:
Your Loyalty- Manufacturers have costs associated with finding new customers. When they know you are a long term recurring customer they can lower margins because they know they will have long term production. This can have very big consequences. Knowing customers are loyal, helps manufacturers manage machine purchase and maintenance more efficiently. This itself changes the financing risk and associated costs. Good partners will split these benefits with you lowering your costs. Jumping from manufacturer to manufacturer will increase your cost eventually. Don’t be afraid to ask for lower prices with longer runs, and more production stability.
Managing people is a major cost. Having the optimum number of full paid employees to do your job, instead of various schemes to get part time and contract employees saves administration and downtimes due to scheduling issues. Be upfront about how much business you will really be able to send their way, they will be able to use this information for their costing considerations.
Give more work to a single vendor; let them know ahead and expect price consideration. Contract for price so they don’t raise the margin (meaning you will have to pay for material changes).
Help your manufacturer lock in materials prices by guaranteeing volume and pre-paying a portion of the materials costs. While the cost of money is very small right now, larger materials contracts can lower the manufacturing cost without the risk that they will be over inventoried or have the wrong materials in stock. Manufacturers with extra space for storage can be beneficial to volume materials purchases, weight materials costs against any extra charges for storage.
Resist switching to another lower cost vendor when the product development is complete and successful. The new low-bidder may not realize the nuances of production that your initial vendor has worked out. Adding or changing vendors adds to the statistical variation of the overall product, increasing the potential for errors and customer returns. Manufacturers get comfortable with tool building (internal or external vendors) and understand how they will interact with the machinery. This eliminates glitches that can delay your production and increases quality across the run.
Consider your pricing strategy against your competitors. A difference of pennies may yield more margin, but if your overall marketing strategy is on target, very low unit manufacturing costs should not be real buying issue for the customer. While each product/industry has a low cost leader, for most companies competing with a low cost leader is a very poor pricing strategy. Market leaders have developed differentiators in packaging, design, specialization service or quality that more than makes up for small cost differences. Learn to build products that have real value. If value is quality, service, image and cost, then better quality and design can increase the perceived value to the consumer. Good partners can help you do this. Developing value through innovation is not a commodity, finding companies that can do this are difficult to find.
As one of the oldest plastics manufacturers in Southern California, Microdyne has the expertise and experience to assist you with with initial design, tool engineering, materials consulting, and production considerations. Because we have both injection and blow molding machinery, we can solve problems when both methods are needed for your project. Best of all, our team has been doing over forty years and they will look out for your interests throughout the process.
If you have a new project we’ll be interested in talking with you about it. If you need lower prices consider letting us estimate it for you. Just fill out the form at the Quote link below.