Volume is one of the most important factors to think about in any manufacturing business. There are so many risks involved if product volume is not carefully planned, risks that could result to profit loss or waste of resources.
Risks in Product Volume
There are two huge risks to consider when it comes to product volume. These risks can lead to disastrous results, which can jeopardize the entire business.
1) Producing too much
When you produce more than the optimal volume, you would have to worry about the additional costs. For one thing, there will be a need for additional storage space as distributors and resellers will most likely order what is enough for them, not more than that.
You would also have to think about a product’s shelf life. The more excess you have, the higher the possibility of products staying in storage longer. This means that quality may be compromised.
Seeing all this, you may end up with wasted investments as you shell out a lot to produce products that may not be sold as soon as you want them. Extra storage will also cost you, as well as maintenance of this storage space.
2) Producing too little
Producing less than the expected volume would, of course, mean that you also spent less on raw materials and production costs. However, you would have to think about the long-term business repercussions. This means that there is a tendency for you not to have the amount of products required by your clients. Failed fulfillments like this could lead to loss of trust.
You would also miss out on the opportunity of additional profits through clients who have immediate needs. Because you would have to work hard in distributing the little that you have among those in line, you lose the chance of adding more clients on your list simply because you will have nothing to sell them.
Evidently, poor planning when it comes to product volume can affect not only your total costs, but your profit as well. It could also lead to the loss of clients that you have worked so hard to build relationships with.
This is why it is always necessary to plan adequately for the volume you’ll be producing each time. Do not only think about the current demand – think about on-the-spot demand as well. Add some buffer, but don’t make it too much.
Once you have found the perfect balance, it is easier to produce the perfect amount that will let you supply your clients’ needs and maximize profit.