The Effect of Financing on Factories and Manufacturing
With dozens of factors affecting policies and procedures in your factory and manufacturing plant, an essential factor is financing. Your financial position plays an incredible role in dictating how your factory operates. Learn how to leverage this factor to improve your industrial business.
One of the biggest struggles in the manufacturing industry is cash flow. Understanding how cash affects your factory is critical to beating the competition and improving efficiency in your plant. Your factory has an ideal amount of inventory in order to reach peak efficiency. However, cash flow often makes it unreasonable to store the ideal amount of inventory. Without proper financing, your business may be operating with a more lean supply of materials and inventory in order to keep up your working capital.
Understand how globalization affects your company and your finances. In an increasingly globalized industry, it’s essential to understand how finances play a part in choosing localized raw goods, products, customers and even business locations. Globalization largely occurs in order to save money. Thus, choosing the location of your customers and your inventory purchases is largely based on the financial implications.
Consider the just-in-time inventory strategy. With this manufacturing model, your factory holds just enough raw goods to create just enough inventory to fulfill your orders. A slight delay in any part of the chain could cause catastrophic delays.
Instead, a more optimal and less risky way to improve your business model is to store more raw goods and more inventory. However, financial pressures often dictate your warehouse storage more than risk management.
A great way for your company to improve its position is to balance risk management and financial pressure. Increasing your working capital allows you to balance orders more effectively and keep larger supplies of inventory in your warehouse. More inventory, as long as your inventory isn’t time sensitive, allows you to be more flexible with order times and able to respond quickly to sudden surges in demand.
When you look to create a lean inventory model using just-in-time production, this decision is affected more by financial pressures than risk avoidance. In the same way, decreasing marginal costs also comes from a finance-driven outlook. When you decrease your margins, you’re often looking at the way to generate the optimal amount of profit, rather than deliver the optimal product.
Whether you’re operating a small warehouse or an extensive manufacturing portfolio, finances have a huge impact on your entire process. Understanding how finances affect your factory is the first step to improving your overall business model.