Avoiding the Mistakes Manufacturing Growth Can Hide

Inventory

Manufacturing tends to run on thin margins, and no one wants all their profits tied up in inventory. The ideal situation however – never buying more than you need for contracts that are already signed – is a difficult balancing act, especially when you are growing and depend on parts made overseas that can take months to source.

A thorough analysis of sales trends, demand, and seasonal fluctuations can help you establish the right balance for sustainable profitability.

Cost of Goods Sold

When business is growing, it’s easy to overlook small things that can inflate your costs. Make sure you understand your direct costs and the impact they are having on gross margin.

A thorough review of your costs in times of growth can reveal opportunities to drive expenses down. Are you so busy that you are having to pay overtime wages, driving up labor costs? Are production demands hiding inefficiencies? Are you overlooking opportunities to reduce or repurpose scrap?

Unprofitable Lines

Growth spurts are especially good at concealing problems in a single location, product line, or account. Solid monthly financials and accrual accounting can ensure that you have transparency into profitability that can be sliced to let you see what you need to see.

Pricing Strategy

Manufacturers are vulnerable to even subtle shifts in costs. The price of major commodities like steel or plastics can fluctuate constantly and even small increases can make a dent in profitability, especially if you’ve signed long-term contracts at fixed prices. Good pricing strategies require close vigilance of your costs and regular assessment of your pricing, even in times of revenue growth.

Maintenance Practices

In times of growth, it can be difficult to interrupt production lines for maintenance, especially if it’s just routine. No one wants to throw a wrench into a period of booming production. It’s important, however, to view regular maintenance as an investment in your continued growth and to recognize that a planned interruption is a lot less expensive than the alternative.

Strategic Planning

Growth-minded business owners know the importance of forward-looking financial planning, but when you’re in the middle of it, growth has a way of yoking you to day-to-day concerns. The reality is that times of growth are an ideal time to check in on your strategic plan.

It’s important to have the financial reporting you need to answer important questions: Is profitability growing with revenue growth? Are you experiencing more bottlenecks in your production processes? Is it time to invest in additional equipment or labor?