Are you thinking of establishing your own company? Here are 10 strategies you can use to gain traction when you start a manufacturing business.
1. Leverage Market Trends
You’ll get much farther if you leverage market trends. Research what others are investing in and use it to your advantage. For instance, a war or an embargo affects manufacturing outsourcing, allowing you to find niche areas with high demand.
Still, you must consider the context behind every trend. For example, the medical equipment manufacturing sector had a profit margin of 145% in 2021, making it the most profitable. While this figure might interest you, remember how the COVID-19 pandemic boosted demand for healthcare-related products.
Particular market trends may seem like great investment opportunities, but note which are situational. Focus on leveraging your research to find gaps, then fill them.
2. Minimize Downtime
Before you start a manufacturing business, implementing preventative measures is essential. Since you can’t produce any goods during downtime, it’s an ideal area of improvement. You should address it before you begin production so you rarely have to deal with it.
You should address equipment downtime as soon as possible because it can get expensive. For example, you could lose $22,000 every minute your business’s transformer is down. Even if everything works properly, all machines need maintenance eventually. Have backups on hand to keep things running smoothly.
3. Get Equipment Secondhand
Equipment is one of your most significant investments when you start a manufacturing business. Although the cost varies widely depending on your operations, it will be high regardless of your industry.
Investing in secondhand equipment is one of the best approaches. It can drastically increase your savings and allow you to broaden your options. You get many more opportunities when you can purchase machinery that was previously out of your price range.
4. Negotiate With Suppliers
Most people think they have little leverage because they’re just starting out. While their assumptions have some truth, most suppliers are open to negotiation. Determine what they’re willing to compromise on and see if they’ll budge. Your business is important to them, so they may be ready to charge you less or give you a shorter contract.
5. Automate Your Assembly Line
As of June 2023, there are over 580,000 unfilled manufacturing jobs in the United States. The labor shortage increases as elderly workers leave the business and young people enter other industries. It may be challenging to source skilled workers, so you should consider automation.
According to one survey, 72% of manufacturing companies leveraged smart technology like automation in 2022. You could use artificial intelligence or robotics to fill the workforce gap. Plus, it would streamline the production process, reduce human error and increase profit.
6. Secure Government Funding
Funding is a significant concern for startups because they typically need more liquid assets. How can you start a manufacturing business with limited funds? While you could try crowdfunding, the government is your best bet — it offers plenty of fantastic funding opportunities.
For example, certified development companies offer 504 loans — a special incentive for manufacturing businesses. You could get up to $5 million to grow your business, source new equipment or hire more workers.
The government has many other beneficial programs you could enter into. Small business investment companies directed by a federal agency have invested $14 billion in manufacturing businesses since 2012, accounting for nearly 25% of the program’s budget so far. They seem to favor entrepreneurs, so it would be wise to take advantage.
7. Produce a Product Prototype
To start a manufacturing business, you must have quality assurance. You have to ensure you can consistently create an excellent product to gain traction in your industry. Once you have your equipment, it’s best to make a prototype.
Although it’s tempting to ramp up production as soon as possible to see a return on your investment, testing your staff and machinery is more wise. If the first product you makes comes out defective or less than ideal, you can check for equipment malfunctions and fix it before it affects your clients.
8. Hire Entry-Level Workers
Like most companies, you must find, hire and train staff before you start a manufacturing business. Although many entrepreneurs work independently, you’ll need a team of laborers for assembly and quality assurance.
Turnover is a serious concern because finding and training someone costs a lot. In the United Kingdom, over 63% of CEOs focus on filling internship and apprentice roles as a workaround. Since they specifically concentrate on hiring low-skill, entry-level workers, they’re more like to retain employees.
It’s also much more affordable to hire people with little experience. You can start them at much lower rates, which is ideal for a startup. Even though they’ll need training, most people quickly pick up on repetitive tasks.
9. Start Small
Location is one of the most important aspects to consider when you start a manufacturing business. It needs to be in a convenient space for distribution and receiving while also being nearby a populated area to make sourcing staff simple. Plus, you must consider the building’s layout — it has to fit all your equipment, workspaces and inventory.
Rent will likely be your largest expense when it comes to location. Because the warehouse vacancy rate was 3.9% in 2022 — the lowest since 2015 — rental prices have increased. As of 2022, it costs $7 per square foot to lease a space.
10. Shrink Your Utility Bill
You have to think about expenses. A bigger building can fit more workers and produce more products, but it will cost more to run and maintain. Determine if a smaller facility is the best choice — you can always scale in the future if you need to.
You’ll likely use a lot of energy. In 2022, manufacturers accounted for 78% of electricity purchases — the next closest industry didn’t even break 10% that year. Depending on what you produce, you’ll have to power machines to heat, melt, freeze, cool or pulp.
Consider what your electric bill could be to figure out which venture you should go into. If you’re set on something with a high power requirement, try using solar panels or energy-efficient equipment. It might be more of an initial investment, but you’ll save over time.
You’re Ready to Start a Manufacturing Business
These strategies can help you prepare before starting your manufacturing business. You can turn this investment into a profitable venture with enough effort and commitment.