
Why does your manufacturing company struggle to make a profit?
Does your manufacturing company struggle to make the profit you want?
In our work we see some of the problems described below:
1. Pricing
Many engineering & manufacturing businesses work on a cost-plus basis, working out the costs of manufacturing, associated overheads, adding what they think is their achievable profit, & cross checking that with what their competitors charge who do the same, but could you charge more?
We say try to move away from cost-plus models, by using data analytics & competitive benchmarking to adopt value-based pricing. Understand & articulate the value you bring to customers, so they understand the unique benefits of your products – such as superior quality, faster delivery times, or advanced features – then charge a premium that reflects these advantages.
2. Productivity
Studies suggest UK manufacturing sector is lagging well behind our counterparts like Germany, France and the States, as typical country competitors.
You could focus on enhancing innovation, on digital transformation & upskilling the workforce. Then, invest in technologies, such as AI, automation, Industry 4.0, but make sure your team is trained up to use this tech.
3. Skills Gap
Manufacturing & engineering companies need a lot of skilled people. There is a shortage of quality engineers, so you literally can’t get the staff. There is no one training people up.
Look at Upskilling & Reskilling: By implementing continuous learning & development programs in your company to train existing employees on new technologies like automation, AI and IoT, which are becoming integral to modern manufacturing. Introduce Apprenticeships & on-the-job training to give your team real-world experience. Partner up with colleges & universities to help close your skills gap & build a talent pool proficient in modern manufacturing techniques.
4. Poor Sales Growth
Many manufacturing companies end up on a sales plateau because they have no sales systems. They don’t consider the typical business sales growth drivers: getting more leads, more customers, getting them to spend more often, to spend more on each visit, or customer retention.
Why not try a structured approach to optimise these key sales growth drivers?
5. Dependency on key customers
Many manufacturing companies start off by getting one good contract. They keep building sales with that customer, but don’t work out the numbers making up the sales price – so they never know how profit they get from each customer. This means they have little control, ending up with the customer dictating to them, for example asking for retro rebates because when certain volumes are reached.
Conclusion
A good strategy is to diversify your customer base, understand profitability by customer & product, regularly re-negotiate contracts.
If you find this blog helpful and want some more help, why not book a meeting to see what else we can do for you?
It might also be helpful to look at our Virtual Finance Director page on this site, it might be a useful comprehensive service that helps you, because it is specifically designed to solve all of the problems mentioned above.