How Small Manufacturers Can Expand Without Going Broke

Manufacturing Industry

When it comes to operating a small manufacturing company in the U.S.  it is the best of times and it is the worst of times.  The economy continues to grow, federal corporate taxes are at their lowest rate in memory, and the government is finally taking steps to limit the unrestrained access low-cost competitors have enjoyed for years.

However, every silver cloud has a grey lining and the in the case of operating a small manufacturing company this includes growing competition, ability to keep up with customer demands, and being able to upgrade capabilities without breaking the bank.

Does this sound familiar?  Well, you are not alone as thousands of small manufacturers are facing the same issues.  As such, this article will look at how small manufacturers can expand without going broke.

Limit Unprofitable Customers

The customer might always be right, but if you are running a small manufacturing company then you know the high cost of continuing to service unprofitable customers.  As such, you will want to regularly review your customer to see how much it costs to make the products they are ordering.

In some cases, you might be able to negotiate a higher price, while in others you might want to consider outsourcing this production to a subcontractor.  However, you’ll want to make sure your payment terms are as good if not better than what your customer is giving you.  If not, then you are basically acting as the customer’s bank.

Another option might be to look at lower cost equipment – for example, used plastic machinery.  In some cases, this might help you to run production at a lower cost than the machinery you already have.

If none of these options work then you either want to sit down with the customer to reconfigure the terms of your agreement, or slowly let go of their business.  Granted you don’t want to get a reputation as a bad supply.  But if you aren’t making money on a customer’s business, then it’s probably not a good idea to work with them.

Cash is King

Your sales are booming and your profits, at least on paper look great.  However, there is never enough money at the end of the month.  Does this sound familiar?  Well, it is a problem faced by companies large and small.  For this reason, your focus shouldn’t only be on your top and bottom lines.  Granted, these are important but you should also pay attention to your cash flow.

This is the measure of all cash inflows (e.g. sales and investment income) and outflows (e.g. expenses and financing costs).   Tracking this information will give you a better idea of your cash position and will alleviate much of the stress when it comes to knowing if you have enough cash on hand.

An added benefit of tracking your cash flow is that it will help you to build up the money needed to grow your business.   This works when you can collect on your sales faster than you need to pay your expenses.  Having this buffer will give you the cash you need to either purchase additional equipment outright or to get more attractive finance terms – both of which will help you grow without going broke.

Develop a Strong Network of Subcontractors

The old model of having every process in-house is capital intensive and can lead to tremendous waste – especially for small manufacturers.  Given this, a better way to meet requests to expand your capabilities is to develop a strong network of subcontractors.  Granted this won’t fit every case, but having a strong supplier development and management program will help you to add capabilities without needing to tie up cash in new equipment.

Become a Strong R&D Partner

One of the best ways to expand a manufacturing business is to focus on your customer’s R&D processes.  The reason is simple, if you help to develop the products, then you are likely to be the primary supplier.  While the focus on R&D does not come without some costs, the long-term benefits of building customer relationships and owning more of their product development will help to secure the future of your business.

Some specific steps to help develop R&D capabilities include developing your rapid prototyping capabilities – such as 3-D printing – as well as installing a stage-gate process to help provide transparency in the development process.  Beyond this, you can also look at opportunities to expand process capabilities by handling high-performance materials as this will give you a competitive advantage for a marginal cost.

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