Looking ahead to a time when the pandemic will be in our rear-view mirror is a welcome change to the past year of surviving the unknown. It's a new year and time to integrate your post-pandemic business strategy.
Here are five areas manufacturers should focus on to reduce the cost of goods and improve the bottom line.
In-Depth Look: Manufacturing Strategies
Ability to Quickly Adopt New Technology
Technology and process updates will help you reduce operating costs and maximize your profits. Start by looking at your biggest revenue areas and document your processes, sales, cost of goods, and return on investment (ROI) for those areas. Take a critical look at where you might add technology to reduce manual interaction.
The goal isn't necessarily to replace human workers, but rather to use equipment designed to increase efficiency in the process. Then work with your accountant to determine the best tax-advantaged way to invest in the technology by using tax incentives such as the Qualified Bonus Depreciation or Section 179 deduction.
Guaranteed Supply of Key Inputs
Are you experiencing supply shortages due to COVID-19? Are the manufacturing costs higher from your suppliers? Speak with your suppliers about ways you can receive consistent shipments at the best pricing. Look for new suppliers if needed to backfill gaps in inventory.
Now is the time to review your operating costs to see if you need to increase prices to cover rising costs due to supply shortages. Or if you have reliable sources that are price-competitive, you may be able to lower your prices without sacrificing profit, which can lead to a boost in revenue and market share.
Ability to Control Stock On-Hand
Inventory management practices will help you prevent shortages and reduce excessive storage costs. If you don't have a reliable inventory tracking system, now is the time to get some advice from an expert.
There are many systems available to track inventory that will integrate with your financial reporting system. For example, Sage Intacct® has a cloud-based inventory management system that can help you improve cash flow and reduce risk.
Maintain an Experienced Workforce
Well-trained staff complete jobs more efficiently, resulting in lower costs and less product risk. Labor shortages will continue to be an issue in the manufacturing industry. Review your work environment and benefits packages to attract and retain qualified employees. Use bonus and incentive programs for your leadership teams to increase company loyalty.
Make your company attractive by focusing on creating an environment where employees feel valued. Your business can claim the Work Opportunity Tax Credit for hiring a worker from one of several targeted groups. Generally, the Work Opportunity Tax Credit is $2,400 per worker, but it is higher for workers from certain target groups.
Know Your Financial Numbers
Customized financial reporting will give you real-time data to review any time. Have an expert evaluate your financial reporting processes and suggest detailed reporting you may be lacking. Monitoring your business's financial health by using standardized financial statements (including income statements, cash flow projections, and balance sheets) is a great start.
But there is much more you can learn about your business by diving deeper into financials by department, by product line, or by region. This will help you focus on areas that need improvement, and perhaps you will uncover an unexpected area where your revenue potential is more significant and you will want to expand that product or service line.
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Ready to Focus on the Future?
If you were in a hunker-down mode last year, it's time to ramp up and look at your future. Set a goal to start with these four steps:
- Starting with your top revenue generators, analyze your processes from start to sale to pinpoint places where technology or simple process improvements can be implemented.
- Review your vendors to determine any weaknesses in your supply chain and take measures to shore up those areas.
- Update or implement new inventory tracking systems and spend some time analyzing how you manage your inventory.
- Get a second opinion on your financial reporting systems and invest the resources to get the timely reports you need.
Outside expertise can help you see things from a different perspective. SVA's team of advisors can help you take a comprehensive look at your business.
Our consultative approach goes beyond tax planning. We can help you take a big picture look at your future or conduct a deep dive into areas you want to focus on.
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