The 5 Biggest Reasons Why Manufacturers Are Losing Money

Ernest Hemingway once wrote about losing money that it, “happens at first very gradually, and then all at once.” If you are a discrete manufacturer that is losing money, you probably know what he meant. Small losses slowly accumulate, turning into big losses, until there’s nothing left to lose.

Far too many Australian manufacturers get stuck in a cycle of losing money and can’t get out of it. They keep doing the same things and expecting a different result. Producing the same products at the same prices, for the same customers, using the same processes, failing to use effective manufacturing erp software, and more. Doing the same thing over and over won’t turn around a failing business.

Many manufacturers mistakenly believe that just getting more business will solve all their financial problems. However, most failing manufacturers are losing money because of internal issues, not because of a lack of business. Getting more business will only compound those internal problems.

You may be losing money due to inefficiencies on the factory floor, outdated processes, and underused resources. Poor factory layout, unclear workflows, and lack of standardisation can lead to wasted time and increased costs. Slow decision-making can affect production and reduce your productivity. Identifying and addressing these issues is crucial to improving your bottom line and staying competitive in today’s market.

If you’re losing money, it’s time to take a step back and examine every aspect of your business. It might be time for a drastic change. The good news is that if you do this soon enough, you won’t experience what Hemingway was talking about. You won’t lose it all at once.

Here are five of the most common reasons why manufacturers lose money. If any of this sound familiar, you should act as soon as possible.

Your bids aren’t accurate.

There may be nothing that affects manufacturing profitability more than bidding. If you bid too high, you lose out on business. If you bid too low, you don’t turn enough profit. If you’re losing money, the best place to start your evaluation is your bidding process.

Start by examining your costs - and not just your material costs. Also look at your labour costs. Many manufacturers really don’t know how much time it takes to make one unit of product. Also consider your fixed expenses and whether you’re sufficiently accounting for them in your bids.

The good news is that this is an easy problem to fix. Start bidding with more accuracy. A robust cloud-based ERP platform can help you do that. You can use the ERP features to get all the data you need to calculate the perfect price for your jobs.

M1 offers end-to-end capabilities for discrete manufacturers, while JobBOSS² is an ERP for small business that is perfect for smaller job shops. Whatever your size, ECI Solutions can provide the ERP system benefits you need to get your bidding back on track.

Improve bid accuracy by providing real-time, accurate data on inventory, production costs, labour rates, and lead times. Eliminate errors from manual calculations. Account for all your costs and avoid under-pricing or overpricing.

ERP also tracks historical data, offering insights into past projects to create more informed, data-driven bids. This leads to more accurate bids, boosting both competitiveness and profitability.

You're not making the most of your equipment

How many lines do you have sitting around your manufacturing facility going unused? How much inventory do you have your warehouse? Conversely, how many jobs do you have sitting in a queue waiting for inventory to arrive?

Time is money in the manufacturing world. You need to get jobs turned around quickly to maximise your profits. Similarly, you need your capital working for you, not sitting idle on your factory floor.

Many manufacturers make significant capital investments in new equipment, only to find it underutilised due to fluctuating demand, supply chain disruptions, or inefficient operations.

High-tech machinery can sit idle if you don’t optimise scheduling, workforce training, or production planning. Maybe you've invested in expensive equipment based on projected growth that doesn’t eventuate. This leads to financial strain and wasted resources.

On the flip side, you may be waiting too late to buy materials, which also costs you money. The longer it takes for you to turn jobs around, the longer you’ll have to wait before you can start the next job.

The solution here is to get a better grip on your process. Exactly how long does it take for you to produce a product? How long do you need to order materials before starting the job? Tighten up your process and schedule so you can put your capital to work more effectively.

Make the most of your investments. Check your utilisation rates and consider options like contract manufacturing, equipment leasing, or process improvements. This will help to ensure your spending provides real value.

You’re not managing cash flow effectively.

Bad cash flow can sink any business. You may not be able to control when cash comes in the door, but you can control how you plan for it. Unfortunately, failing to make cash flow projections can lead to some really tough decisions.

One common source of cash flow issues is receivables. If your business is like most, your clients want to pay you as late as possible. The problem is that you need that capital to keep your operation running. Try taking action to get them to pay sooner.

Offer discounts if invoices are paid within 10 days. Start the collection process after 15 days instead of after 30 days. Be proactive. That cash flow is too important for you to be passive.

Also, resist the urge to use costly cash flow management solutions. Invoice lending may seem like a convenient solution, but the interest costs will eventually bury you. If you can foresee a cash crunch, try alternative solutions, like negotiating payment relief with some of your vendors. Don’t put pressure on your bottom line with unnecessary interest payments.

An ERP system helps you manage cash flow by giving you real-time insights into inventory, sales, and expenses. So you can make informed decisions and avoid cash shortages.

Your employees are wasting time.

Do your workers like to have a good time on the factory floor? There’s nothing wrong with everyone enjoying themselves. However, those good times can quickly turn into lost profits. Fifteen minute conversations can add up to hours and before you know it, you’ve lost significant production time.

Your factory floor setup may encourage wasted time. If equipment and workstations aren’t efficiently organised, employees can waste valuable time moving between areas or waiting for tools and materials. You then end up paying your workers to wander around your factory floor.

Poor floor design can lead to unnecessary delays, confusion, and even safety risks, which can affect your productivity.

You can fix this by refining your processes and optimising your factory layout. Monitor how your workers spend their time and then look for ways to tighten the process. Changing the floor layout may improve efficiency.

An ERP system can help reduce time-wasting and boost efficiency in your manufacturing operations. It integrates your processes, giving you real-time visibility and streamlining workflows. You’ll increase productivity, reduce inefficiencies, and make the most of your resources.

You’re not delegating effectively.

This is a hard one to learn, but it can have a huge impact on profitability. You can’t be Superman or Superwoman at work, no matter how hard you try. If you try to do everything yourself, chances are good that you won’t do anything well.

Learn the art of delegation. Train your employees to take on more responsibilities and then transition work to them. That will free you up to focus on more important things, like getting your manufacturing operation in the black.

Losing money can be frustrating. Take a step back and objectively examine the issues to find the cause of the problem.

Having the right information can be make it much simpler to diagnose the problem. An ERP system can help you to delegate more effectively. with clear, real-time information on tasks, resources, and progress, so you can assign work to the right people at the right time.

At ECI Solutions, we help manufacturers just like yours to avoid losses and maximise profitability. We can help you spot underused staff and ensure accountability.

Contact us to learn how we can help ensure your manufacturing facility remains profitable.