How to increase production profitability

The question of how to increase production profitability worries many entrepreneurs. This indicator is directly related to many factors: profitability, labor productivity, cost reduction, reduced marriage, etc. One of the most important quality indicators of the level of profitability is the cost of production. A direct way to increase production profitability is to reduce its cost.

Instruction manual

1

Economists have calculated the costs of manufacturing associated with the manufacture of parts. So, the cost of manufacturing a part is in percentage terms: raw material costs - 22%, equipment costs - 26%, employee wage costs - 29%, overhead costs - 21% and costs for improvised tools - 3%. This, of course, is the average data taking into account global experience.

2

Consider all the factors that affect the cost. It is clear that you can not significantly affect the cost of raw materials. You can reduce the cost of personnel due to the qualifications of workers, which will negatively affect production costs, since the percentage of rejects will increase significantly. Reduce the number of workers also will not succeed - this is due to violations of technology.

3

As for overhead, 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 the administrative apparatus, etc. - there is also nowhere to save.

4

You have only two factors that you can influence in order to reduce production - the cost of available tools and equipment (machines). As for the instruments, even acquiring them at a significant discount or below the price range, you are unlikely to achieve a significant reduction in cost, since the total share of the value of the instrument is small. The savings under this article are not at all effective.

5

You, in fact, have only one opportunity left to increase production profitability by reducing production costs - to increase the productivity of the equipment and machines used. Suppose that the speed and time of manufacturing one part increased by 20%. Overhead costs and staff costs will be reduced by the same amount. Total savings on all items will be 15% of the cost of the part.

6

This method of increasing the profitability of production is the most effective. Even taking into account that it will be necessary to spend some money, albeit rather large ones, on the acquisition of new equipment, they will pay off quickly enough. You can increase productivity by increasing the number of manufactured parts or products per unit of time.