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Continuous Integration Authors: Elizabeth White, Flint Brenton, Liz McMillan, Pat Romanski, Amit Gupta

Article

What Does It Cost to Run a Food Factory?

What Does It Cost to Run a Food Factory?

Establishing and running a food-manufacturing unit is no easy feat.  Setting up a food division in some locations has obvious advantages especially if the place has access to skilled labor, raw materials and resources, robust transportation system, water supply and other favorable assets including climate and electricity.

 

Research On A Running Food Factory

A research conducted by a New Jersey firm estimated the annual cost of running a food factory with 500 employees in a 300,000 square feet space across 24 regions in North America. While Bay area in the U.S. emerged as most expensive due to lack of favorable assets, Chicago ranked among the top 10 priciest markets as it offers several assets mentioned above.

In Canada, Eastern Ontario emerged as one of the least expensive markets with estimated annual factory costs of $30.3 million. The favorable exchange rate for a U.S based company and Canadian public healthcare system makes Canada an attractive market for establishing a food manufacturing facility.

Once a market is identified, the chief consideration in setting up a food production unit is the factory overhead cost. A factory overhead budget can be calculated by comparing the estimated costs with actual production costs. Monitoring the overhead budget on a monthly basis gives a better idea of overall profit margin, check for cutbacks and adjust actual costs.

 

What Is Included In Factory Overhead Expenses?

Factory overhead expenses are indirect expenses incurred when running the factory. These include wages paid to technical personnel such as quality control staff, product inspection unit, material and equipment handlers, equipment repair specialists, maintenance and housekeeping staff. Utilities, insurance premiums and property taxes are also included among factory overhead costs. However, it does not include raw materials, labor resources, marketing and administrative costs.

 

Estimating the Monthly Overhead Costs

A budget is usually prepared annually and then broken down into twelve months to arrive at a monthly expense figure.  A budget of the previous year, if available, is usually considered a good starting point. Any new addition to production operations and price changes is updated directly into the new budget.  Indirect wages are also estimated by calculating non-direct labor hours and maintenance and repair costs.

 

Cost Per Unit Calculation

The total production costs divided by the estimated number of produced or sold units calculates the cost per unit. Each unit includes a portion of all overhead costs. For example, if the total factory overhead costs are $40,000 and the estimated production units are 10,000, the cost per unit will be $4.

Selling Price Adjustment

The cost per unit provides a fair idea of any selling price adjustments that may be required. Adding direct costs of labor and material to this figure and then dividing them by total number of units gives a clear picture of establishing or adjusting the selling price for each unit and resulting profit margin. Increasing the selling price and decreasing cost of production can create a wider profit margin.

 

How to Mitigate Expenses?

A well-devised strategy and energy-efficient equipment can help prevent or limit some overhead expenses and ensure an environment-friendly approach to growth and development. Some of the most important changes include:

  1. Identifying leaks and repairing them - Installing leak detectors can identify current and potential leaks before they cause damage. In recent years, leak management has become an integral component of several manufacturing facilities.

  2. Thermoelectric Cooling - Using thermoelectric refrigerators for cooling cabinets instead of Freon refrigeration systems can cut down electric costs by 50% to 80%.

  3. Using venturi nozzle blow guns  - Blow guns can be replaced with venturi nozzle blow guns to receive further cutbacks on energy.

 

Skilled Workforce

Having highly skilled and well-trained personnel in the workforce is the best way to optimally utilize resources for the company's growth.  The most sought after professionals by manufacturing companies include PLC Programmers, Robotics Technicians, Electronics Technicians and Electromechanical Technicians.

A skilled technical workforce, strategies to mitigate expenses and a clear factory overhead expense budget are some of the best ways food manufacturing companies can ensure sustainable growth and good profit margins in new markets.

 

More Stories By Steffen Ploeger

Steffen is bilingual (German/English)and currently working as an SEO specialist at 9thCO. He likes to speak his mind and enjoys sharing his thoughts online through blogging and social media.