Manufacturing Costs: Cost Factors and How to Control Them

Generally, the whole manufacturing costs include direct materials cost, direct labour cost and processing costs. Direct materials are the raw materials that become a part of the finished product. The direct labour cost is the cost of workers who can be easily identified with the unit of production.
Since manufacturing costs have a direct impact on profitability, pricing, and product competitiveness, understanding and managing them is crucial for enterprises. Effective manufacturing cost management strategies can boost productivity and product quality, which in turn helps companies expand and succeed in the market.
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What are Manufacturing Costs?

Manufacturing costs encompass the expenditures associated with the transformation of raw materials into a finished product. These costs encompass the value-added processes that interconnect four key inputs: labor, materials, energy, and machinery. In general, manufacturing costs are highly variable and contingent on the specific product being produced.

Manufacturing Costs vs. Production Costs

Production costs are more comprehensive in scope. They encompass not only the manufacturing expenses but also encompass administrative and overhead costs essential for sustaining a viable business. These broader costs encompass items such as insurance, record-keeping, rent, marketing, and the salaries of personnel engaged in indirect or non-value-added labor roles.

Differences Between Direct and Indirect Manufacturing Costs

Within the realm of factory operations, various tasks are carried out on the production floor. Some of these tasks have a direct impact on the transformation of raw materials into either a fully finished or semi-finished product. Depending on the specific nature of the work being performed, these tasks can encompass activities like cutting, stamping, gluing, sewing, welding, painting, drilling, molding, assembly, and more.

While the list of such tasks may be extensive, they all share a common characteristic: they involve specific actions performed by operators directly on the workpiece, thereby enhancing its value as it progresses through the production journey.

Conversely, there exist other crucial manufacturing costs that are categorized as indirect. This group encompasses activities such as material testing, measurement, storage, moving, cleaning, and similar processes. While these steps are undeniably essential, they do not directly modify the workpiece or augment its intrinsic value.

Manufacturers, as well as their customers, consistently strive to minimize these indirect costs, redirecting their resources towards activities that generate added value. In the subsequent discussion, we will dissect manufacturing costs into distinct subcategories and elucidate strategies that product developers can employ to effectively manage and optimize these costs in their favor.

Factors Influencing Manufacturing Costs

Labor Costs

Labor expenses often fluctuate in response to the prevailing socio-economic conditions of the region where production occurs. While cost-conscious customers typically seek to minimize labor expenses, achieving this objective must not compromise product quality.

In instances where processes are highly automated or involve basic tasks, extensive expertise may not be a prerequisite and, consequently, should not command high compensation. However, it’s essential to exercise caution when prioritizing the lowest labor costs, especially during new product development. Opting for extremely cheap labor may result in compromised quality and manufacturing shortcuts (such as omitting material testing protocols), posing substantial risks to customers.

A more prudent approach involves collaborating with suppliers that employ lean manufacturing principles alongside a skilled workforce. This synergy ensures minimal waste and maximizes quality.

Raw Materials

An initial decision confronting product developers is the selection of materials to use. With an array of plastic resins and metal alloys available, each possessing distinct physical properties and price points, this choice significantly impacts manufacturing costs.

Fortunately, raw material costs are among the most predictable and controllable expenses. Raw materials are commodities traded extensively on the international market, and their costs, with few exceptions, are determined by the volume consumed. These costs tend to remain relatively stable regardless of the production location.

Commodity price tables, readily accessible online and continuously updated, enable developers to anticipate these expenses in advance. While it is advisable not to compromise on material quality, developers should consider materials that meet their functional requirements without exceeding those requirements unnecessarily.

Part Complexity

It’s essential to recognize that complexity doesn’t always enhance a product’s aesthetics or functionality. In fact, excessively intricate designs can impede a product’s utility and performance while also increasing manufacturing costs.

Furthermore, measuring numerous intricate features can be extremely time-consuming, potentially requiring specialized fixtures or gauges, which add to expenses. As a general rule, designing a part should prioritize complexity only to the extent necessary, avoiding unnecessary intricacies.

Tooling

Processes like plastic injection molding, high-pressure die casting, and polyurethane vacuum casting demand custom tooling, which can necessitate significant preparation time and represent a substantial initial investment. Tooling costs are influenced by the material used, complexity, and the need for treatments like photo etching, heat treatment, or surface coatings.

Product developers can impact tooling costs by:
Opting for less costly tooling materials.
Avoiding additional surface treatments.
Considering manual loading instead of automatic loading.
Designing a simplified product.
Exploring alternative production methods, such as CNC machining, that do not require tooling.

Volume

The cost of tooling can be a significant expense, but for high production volumes, it becomes proportionally less significant as each part becomes cheaper to produce. Thus, investing in quality tooling materials is advisable for large expected volumes. Such tools offer faster cycles, greater durability, tighter tolerances, and reduced scrap part production.

When considering volume, it’s essential to explore whether raw material suppliers offer bulk purchase discounts. This should be evaluated over the product’s lifetime, not just for a single production order.

Precision

Precision and accuracy, while often used interchangeably, have distinct meanings in manufacturing. Accuracy relates to how closely a measurement aligns with the intended value, irrespective of the measurement system used. On the other hand, precision refers to consistent accuracy within a specified range of acceptable tolerances.

Achieving higher levels of precision and accuracy demands more time and effort, as environmental factors and material behaviors become increasingly critical at finer tolerances. Closer tolerances and higher precision can lead to substantially increased labor costs without necessarily delivering superior results for most common applications.

To reduce costs while maintaining quality and performance, consider relaxing tolerances in non-critical areas of the design. In most cases, modern manufacturing facilities, equipped with quality tools, can achieve acceptable accuracy and precision within their standard operational range.

Sungplastic: Reliable China manufacturer

Since 2002, Sungplastic has been a profession China manufacturer that provides high-quality services including injection molding, CNC machining, over molding, blow molding, compression molding, 3D printing, rapid prototyping, tooling manufacturing, casting, welding, assembly, surface finishes and post-process. With ample production experience, we provide a competitive cost and master the methods of controlling manufacturing costs, and are committed to producing high-quality products efficiently.

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Related Resources:

On Demand Manufacturing for Plastic Parts
High Volume Machining: Get reduced costs, quick-turn lead times, and finishing options
Low Volume Injection Molding: Custom complex plastic parts or plastic prototypes