Avoid a cash flow crunch during product manufacturing

 

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For most companies manufacturing a new product, keeping costs low while maintaining a decent profit margin are the top priorities. That cant come at the cost of quality, however. When starting a new manufacturing project, managers should create a cash flow statement to ensure they have an accurate estimate of project costs. They should look to related products already for sale in the marketplace to aid them in creating the cash flow statement. One caveat is that project managers must research the cost of materials used for manufacturing rather than the finished product itself.

Manufacturing costs companies often miss during startup – Its a common mistake not to consider all initial costs when creating a preliminary estimate. Some of these include fist orders with a parts supplier, the purchase and use of tools, design, and development. By including these costs, manufacturing project managers can create a more accurate budget and keep track of expenses right from the start. Ideally, a project estimate should contain the following items:

Labor costs

List of Parts

Production Levels by the day, week, month and year

A written plan outlining how to respond to unexpected change in product demand

Costs of consider when creating a prototype and starting the manufacturing process – For some manufacturers, creating a new product prototype is the simplest part of the process because it forces them to consider many things before manufacturing can start. Deciding on which type of materials to use for the product and its packaging is a prime example. While manufacturers obviously want to reduce costs as much as possible, they also don’t want to release a product to soon. It could be unsafe for consumers as well as just not meet their expectations. This could result in unfavorable reviews for the company and even lawsuits.

Another thing to consider is the amount of money available to make a down payment to a supplier so manufacturing can begin. It is important for project managers to remember that it could take months to turn a profit on the new product, which means they don’t want to tie up too much of the budget upfront.

The manufacturing process tends to proceed most favorably when the supplier and manufacturer are in close physical proximity. Not only does this reduce shipping costs, it enables the manufacturer to make onsite visits to check on the progress and remain in close communication with the supplier.

How to reduce expenses related to selling the product. – If the initial return on investment (ROI) does not meet the projected goals, manufacturers should consider reducing costs in these areas.

Shipping negotiating a volume discount with a major shipping company can help to save money.

It costs the least amount of money to store unsold goods onsite. If there’s just not enough room, it’s important to compare costs and value of several storage facilities in the local area.

Transport: Storing products offsite or delivering them to a shipping center increases fuel and maintenance costs. Manufacturers should make only necessary trips as well as maintenance.

Although following these steps takes time and discipline, there often necessary to ensure a decent ROI rather than losing money on a new product.

 


 

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