Contemporary Energy Solutions

6 Ways Modern Manufacturers are Losing Money


The changes to the modern manufacturing process have created some unique challenges to manufacturers. Here is our list of the 6 ways your manufacturing business could be losing money, and what to do about them.


1. Recruiting the Right Team Members


America’s technological labor force shortage means that your labor costs will increase in the coming years. You’ll likely need fewer workers than you did before, but they’ll have to be skilled, and will demand higher salaries.


There’s really no way to avoid this expense unless you decided to move your manufacturing operation abroad. You can, however, focus on hiring the right talent and doing whatever is necessary to retain it (the cost of replacing a worker can be up to 21% of that worker’s yearly salary).


2. Stagnating Worker Productivity


Keeping employees on the factory floor inspired can be a full time job in itself. Things like outdated machinery or poor lighting add to the daily disgruntlement of employees and lower their productivity, costing you real dollars.


You don’t have to meet Google’s challenge and install nap cubes, but you should investigate some of the lower priced ways to make your workers comfortable and efficient at what they do.


3. Globalization and Increased Competition


At the same time you’re handling the labor shortage, you’re working against manufacturers in developing countries, who have labor costs at just a fraction of yours. If you’re committed to manufacturing in the US, there’s no workaround for this challenge except to take pride in the higher quality control standards American products can usually claim.


4. A more fickle consumer


Customer loyalty is no longer a given. Mobile phone manufacturers have experienced this, with customer shifting between platforms as soon as a competitor comes up with slightly better technology.


Keeping the modern customer happy involves work on multiple fronts, such as beginning with a good design, improving quality control, creating the image of reliability , and promoting your manufacturing operation as a user of sustainable practices.


5. Increasing Fixed Overheads


Surprisingly, even with the improvements in technology, overhead costs for manufacturers are forecasted to go up. Rising prices of commercial real estate and more frequent equipment expenses as manufacturers try to keep up in the technology game are squeezing the already thin margins of manufacturing.


Many have moved out of major urban centers to keep costs down. When the time comes purchasing new equipment, doing your research and buying more expensive, top-of-the line machinery might actually help you in the long run by increasing worker productivity and lowering the need for future replacements.


6. Increasing Variable Overheads: Energy Costs


Thankfully, this is one aspect where you do have the power to drastically change your long-term costs. Energy costs are expected to rise significantly in the next decade, but a this is one area where technology is on your side. New technologies, for example, have enabled as much as 50% reduction in lighting prices, with whole factory retrofits paying for themselves through energy savings in just a couple of years.


32% of all US energy consumption in 2012 was used by manufacturers. And the climate isn’t going to get any better: It is anticipated that industrial sector electricity prices will rise 28% between 2013 and 2040. Commercial sector electricity prices will rise an astounding 83% by 2040.


Some of these challenges are easier to tackle than others. Focusing on easy wins, like your facilities and keeping your current worker base happy and motivated will help your company in the short term while you plan your long-term business strategy.


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