Product cost optimization with customized approaches
Fact-based decisions with the core cost approach
In addition to knowledge of methods to reduce product costs, such as those in the TARGUS PCM Toolbox, stringent and systematic work on the subject is central to optimal product costs. Although some awareness of product costs is often present in businesses, their optimization is often deprioritized over day-to-day operations and in competition with other initiatives. Especially in the development phase of a product, the development team primarily focuses on timely completion and complete implementation of customer requirements. The latter are often taken as given over the entire lifetime of a product and are not questioned.
Define core costs – the bare minimum
Our product cost optimization (PCO) approach uses the determination of the hard cost minimum, the core costs, as a central element from our toolbox: After consistently breaking down the product into functional and assembly groups, we determine which functions are really required to fulfill the core functions and which parts can be designed in a more cost-effectively manner. Here we particularly use value analysis to identify expensive features with little customer benefit. By calculating manufacturing costs, identifying cost drivers and consistently separating core functionality from additional benefits, the minimum costs required to fulfill the required function are determined. An important element in achieving this is gaining complete transparency over suppliers’ prices, quantities, manufacturing costs, and production costs.
Based on this core cost analysis, which forms a comprehensible and transparent decision-making basis, entrepreneurially sensible decisions can be made: which additional benefit is worth its additional cost? Does standardization pay off? The basis for decision-making is turned into cost-based facts rather than opinions and gut feeling.
Of course, the cheapest product is not always the best: additional benefits, such as increased quality demands, e.g., increased service life, greater flexibility of use, are evaluated in terms of costs and converted into a surcharge catalog.
Setting challenging goals and achieving them with the right setup
This core approach is embedded in a four-phase project approach as shown in the figure. In all phases, we choose the methods suitable to the specific challenges and frame conditions at our customer from our toolbox. In addition to the methodical approach, two other things are necessary for success:
- Setting a challenging goal with the full commitment from management and at the working level
- An interdisciplinary working team from procurement, development, product management and production. If necessary this team is expanded to include quality and sales
Only the combination of these three aspects creates the framework conditions for a very successful project and achieve the optimal solution in terms of cost and value.
Project results
- Cost transparency
- Targeted questioning of requirements and specifications
- Identification of measures to reduce costs
- Evaluation and implementation of the measures
