How entrepreneurs optimize costs of production

For many people involved with gasification, that word often invokes a specific image. I contacted Shell to see if they could accommodate a visit for the purpose of writing a story about their facility, and they were indeed able to get me into the plant.

How entrepreneurs optimize costs of production

But how do you reduce material costs without impacting the quality of your final product and altering what your customers have come to expect and rely on? Like most effective business cost-cutting measuresreducing the cost of goods starts with a thorough analysis of the various direct and ancillary ways in which your base materials consume cash flow.

How to Reduce Materials Cost 1. Substitute Lower Cost Materials Where Possible Products can usually be manufactured utilizing a variety of different materials, depending on marketplace requirements and the practices of the manufacturers.

Technology is constantly improving older materials and creating new ones, prices move up and down due to political goals as much as supply and demand, and processing methods change. When considering a change in the materials used in your products, be sure to recognize all factors involved.

For example, substituting a carbon steel for a higher-cost stainless steel will save money, but will also reduce corrosion protection, which may be a valuable product feature for buyers. In addition, different materials may require changing your method of manufacture by increasing cycle times, as well as labor costs.

And in some cases, changing the composition of a product may be worthwhile, even when the material costs are higher due to a simplified production process. Reduce Waste Product engineers typically design products without considering the production consequences, particularly how non-standard purchase units of size, volume, or weight must be modified to create the final product.

Production methods are usually established to minimize the costs of the highest component of production, either labor or materials, at the time the method is established.

Over time, however, prices for materials and labor may shift. This alters the ratio between the two elements and their related expense, so that the cost of scrap material becomes excessive.

Modifying product designs and altering production methods in order to utilize standard raw material units may reduce excessive scrap and its associated costs. Eliminate Unnecessary Product Features Custom products cost more to manufacture than mass-produced products, and any non-standard feature requires an additional step in the production process, increasing the expense.

By determining what is important to your customers, you can selectively attack elements which are not as important to reduce cost. Negotiate, Negotiate, Negotiate The level of your profit depends upon your ability to receive the highest possible price for your products and pay the lowest possible price to your suppliers and vendors.

Every participant in the supply chain is looking for business and will take unusual, often extraordinary steps to make or save a sale — this is especially true in a poor economy. Ask for a discount every time you request an estimate or place an order, and keep asking until you actually place the order.

If you do not get a reduction in price, ask for favorable financing terms, prepaid freight, or other freebies. By negotiatingyou can maximize your position as a buyer — as your buyers do to you. Leverage Suppliers In many cases, a little research will turn up alternative suppliers of similar products available to you.

Determine whether there are any different features between suppliers and whether these differentiating features benefit you or your customers. Is it worthwhile, for example, to have a faster delivery time or favorable financing at a slightly higher price?

If not, purchase from the supplier offering the product at the lowest cost. Requiring suppliers to make frequent deliveries eliminates excess inventory and carrying costs.

While JIT has been criticized in recent years due to the pressure placed on suppliers and the need for an accurate sales forecasting model, it remains one of the more popular cost-cutting methodologies around the world. The lesson for a small business here is to not buy inventory or equipment until you need it or can determine an immediate benefit in either lower costs or improved customer benefits.

This means you will incur additional associated costs in excess inventory. However, allowing vendors and suppliers to deliver materials on their cycle times, rather than on your production schedule, may result in a lower price.

But be sure to confirm the delivery schedule with the vendor and the lower cost before placing an order. Buy Bargains From time to time, unbelievable bargains appear in the market.

A vendor may need to dump inventory due to his or her banking relationship, for funds to fill other contracts, or because the company is going out of business. In all likelihood, your profit margin on the raw materials is considerably less than the margin on your processing labor and overhead.

Transferring material supply responsibilities to your buyer will eliminate a significant cost for you without substantially reducing your profit margin.

Barter Finished Goods for Raw Materials If your products or services are used by any of your vendors, selectively approach them about a non-cash trade between your two companies. Usually, the exchange rate for two different products in a barter is the standard retail price of each.Top 6 Benefits to Contract Manufacturing: Cost Savings – Companies save on their cost-of-capital because they do not have to pay for a facility, overhead and the extremely expensive equipment that is needed for production.

They can also save on labor costs such as wages, training and benefits. Some companies may look to Contract Manufacture in low-cost countries, such as India, to benefit.


An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit.

The most successful entrepreneurs are innovators who find new ways produce goods and services or who develop new goods and services to . Jul 13,  · So I invited Gunderson to share the biggest mistakes he sees these businesses making with Forbes Entrepreneurs and to tell us what he advises them to .

HP SCF provides flexible equity solutions to business owners and entrepreneurs seeking capital. Production and Costs: The Theory of the Firm The function of an entrepreneur is to acquire and combine all the needed factors of production to produce a good.

An entrepreneur takes chances (risks) in the hope of making profits. Cost of production is simply the sum of the costs of all inputs used in production. Shipping to Amazon FBA can become confusing.

How entrepreneurs optimize costs of production

Even seasoned FBA sellers stumble over the options and regulations. This can be especially true for sellers shipping from China, because they have the added layer of navigating overseas shipments, customs and tariffs.

Production Optimization Services | Schlumberger