Cost Management During Product Development

Posted by Vladislav Krasnov on Aug 20, 2018 2:11:58 PM
Vladislav Krasnov
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Why is it important?

Many companies realize that effective cost management, through the product life cycle, is very important.  However, we often see that most of these efforts happen when the product is in the production phase, and there is a need to control costs to improve margins. Many companies try to manage costs during the product development phase with varying degrees of success.

The primary issues with effective cost management, in new product introduction, (NPI) are

  • Lack of time – Engineering resources are focused on developing the designs for production and costs are not the highest priority
  • Lack of motivation – Cost avoidance is usually not one of the metrics on organizational scorecards, but cost reduction is usually incorporated
  • Lack of supplier collaboration on the product design – Suppliers are often treated as manufacturers only, not design partners

However, the benefits of early cost reduction are significant. As shown in the picture below, the biggest cost impact is possible, during the NPI phase, when product specifications, design, and manufacturing processes are being defined. Working on cost reduction projects in the production phase is mostly limited to commercial levers, because design related changes are fairly slow and painful.

CGN Cost Reduction Framework

What are necessary elements of a successful NPI cost management process?

  • Clear cost targets with assigned accountability
  • Clear visibility of the product cost at any point in time
  • Understanding of the impact of various design choices on cost
  • Up-front identification of the supply base and the level of collaboration to drive out maximum efficiency from supplier input
  • Focus on costs in all design reviews along with product performance, quality, etc.

There are several tools necessary to facilitate effective cost management structure, like total cost of ownership (TCO), should cost modeling, visibility dashboards, etc. that teams need to be trained on to apply, going forward, for best results.

CGN has worked with multiple clients in the manufacturing space on managing their product cost, throughout the life cycle, and has a suite of tools and techniques that have been proven successful through the years. We help our clients not only identify and validate opportunities, but work side – by – side with them to drive realized product cost savings.