Drive down wage costs, renegotiate supplier prices to boost profits
Q. Could you give me a few words of wisdom on improving the profitability of a manufacturing business?
A. Sales are vanity, profit is sanity. It is good to see that you are focused on the bottom line. In most manufacturing businesses wages tends to be the biggest cost.
It is not so much about slashing your payroll cost, but about being more efficient and able to produce more product with the same labour levels.
Enterprise Ireland has great supports for lean manufacturing, and if you have not embraced these already I would suggest you investigate the topic and if possible get a lean expert into your business.
Many manufacturers that I have met have missed the opportunity when encountering good business growth to renegotiate prices with their suppliers.
I am sure your business is two or three times bigger since you started. Have you renegotiated prices of items you are buying in?
Very few of your suppliers are going to volunteer discounts and therefore tendering your key costs would be a vital part of improving profitability.
Surprisingly, growing your sales can very often be a solution to increasing profitability. Some businesses make the error of slashing all costs, which in turn makes it difficult for the business to grow. It is about creating a balance.
If you can maintain the business costs at current levels, and drive more sales through at the same time, that will automatically result in the business being more profitable.
Do keep that in the mix of actions you take, otherwise you run the risk of stifling business growth.
Q. I produce a product in the health and beauty sector. I have a relationship with a number of retailers. One of these retailers has an imported product similar to mine on the shelf, which I think is unfair. The product is cheaper and is damaging my sales. How can I get them to remove it?
A. I have bad news for you – retailers will do what they want and how they want to do it.
For you to be complaining that a competitor product is cheaper isn’t credible – and not a conversation I would be encouraging you to repeat, especially to a trade buyer.
I can fully understand the frustration of you working so hard to develop this product, only to find an imported product in the same space.
The reality is that that is life.
Forget about the competitor product and put all the energy into your own product. Build your brand. Go out and meet customers at the coalface and explain to them why it is different. Have a strong digital media strategy. Enter your products in all the awards you can. Secure as much free media coverage.
In general, be seen as someone who is ‘top of your game’ by trade buyers. They really respect this, especially if you have a deep understanding of their business and you are able to articulate opportunities for your product within their shops.
That is what will get you extensive growth and the ear of a buyer.
The big advantage you have is that you are ‘on the ground in Ireland’ and will always have a distinct advantage over the competitor product.
You can achieve so much more by way of brand recognition, etc, and this is where your energy needs to focus.
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