Production Cost: An Essential Indicator for Your Business

We can define two ways to reduce costs in a production process and all of them are based on the assumption of an increase in volume per capita.

But, what is volume per capita?

Through the analysis of the volume per capita we can follow two lines of gain in relation to this indicator: The first is with the increase in volume, this happens if the company is able to have enough raw material to increase its processing, and has sale for this, if the company is limited in raw material and sale, the second possibility is to reduce the amount of resources involved in the operation to process the same amount that is processed on average. This is totally linked to the scenario that the company wants to achieve.

These required quantities are based directly on the sales demand and raw material disposition which is determined by the market and the availability factor.

But what is more advantageous to leverage my production or to balance my workforce?

Distinguishing these two possibilities, in both we are able to have an increase in the volume per capita, this is correlated with lower costs and higher profitability. When we intend to achieve an increase in volume per capita, we always choose to work on increasing the volume produced in terms of achieving productive leverage, because through this we are able to have a much more significant gain, as it is fully correlated with the increase in finance revenue.

Allied to this, when a company determines its equilibrium point and through an operational management methodology, it is possible to balance its process, optimizing or increasing its volume. make profit, that is, the dream of every entrepreneur.

But when we talk about volume per capita we must always be aware of what is going hand in hand with the volume produced and labor.

We are talking about OPERATING COSTS: Operating costs are all expenses that are directly linked to the company's activities, including maintenance, management and commercial tasks, such as: administration and accounting, salaries, electricity consumption bills, water supply , inputs, among others.

To calculate the operating cost of your company is very simple:

You just take the average amount of your expenses over the last few months (usually the last 3 months), and divide by the average sales over the same period.

Companies that have their production costs balanced, have a much better chance of winning a commercial dispute, as they can offer their products with much more attractive values to customers, but for the company to reach this level, a whole job of managing indicators is necessary. and operational maximization.

We will list here 5 points that are fundamental to lower our costs:

• Create goals to reduce your costs, start by mapping your activities and creating operational routines;

• Work to eliminate waste;

• Develop a good management of your stocks;

• Have well-defined negotiation strategies with your suppliers;

• Implement a management system that is able to provide you with reliable information

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By Maycom Trivelin:

Production Engineer, Business Director, Black Belt Lean
Six Sigma, Lean Specialist. Responsible for all Scope
Consulting and Project Management for Avilla Consulting - Brazil

Avilla Consulting | EN