As a brand owner, it stands to reason that maximising profits depends a great deal upon how inexpensively your company can produce its products. At the same time though, reducing your cost of goods sold is an exercise that requires some care, lest you sacrifice quality, which would be completely counterproductive.
Ways to Reduce Cost of Goods Sold
To help your understanding and prepare you for future COGS reduction challenges, here are a few options to consider, which can help to drive down your company’s cost of goods sold and improve profit margins:
- Use less expensive materials in production
- Find ways to reduce waste in manufacture and in the supply chain
- Investigate ways to reduce material storage and transportation costs
- Negotiate ceaselessly on every materials order you place: If you can’t get a price discount, seek other benefits, such as free or reduced-rate shipping
- Join with other organisations in your industry to form buying cooperatives (larger orders, greater discounts)
Move Manufacturing Offshore
Another possible way to reduce the cost of goods sold for your company is to outsource manufacturing to a country where material and labor costs are cheaper than at home.
In recent years, China has become a favorite offshoring destination for western brand owners, although today its popularity may be waning as Chinese labor costs have been increasing fairly dramatically. However, the principles are the same, whichever foreign nation is chosen for manufacture.
You can learn a lot more about outsourcing manufacturing to countries like China, including the traps and pitfalls that await the unwary and of course, all the advantages and benefits, in my informative and entertaining business novel China Sourcing. If you’d like to find out more about this revealing read and other titles that I’ve authored, check out the full book listing here at Supply Chain Secrets Books.
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