Product Costing

Goal

Achieve cost reduction by reducing the prices you pay to suppliers

Strategy

Break the walls that exist between design and manufacturing

Product Costing is a product development strategy that allows companies to anticipate and influence manufacturing costs during the earliest stages of product development. Since it is widely accepted that over 70% of product cost is locked-in during the design phase, it is extremely important that designers and manufacturers collaborate to ensure total product cost goals will be met. The problem is that the typical product development team operates in a “toss it over the wall” fashion. That is to say that the design team is sitting on one side of a wall and the manufacturing team on the other. Once the design is finished, it gets tossed to the manufacturing team in a manner that doesn’t allow for any collaboration. A first-class product development team will instead implement Product Costing to avoid lengthy re-design efforts and missed cost reduction opportunities that result from the more typical approach.

What does an effective Product Costing process look like?

A common product cost reduction strategy is to design individual parts to be simpler, easier to manufacture and less expensive to produce. From the following chart, you can see why an engineer might put all their focus on part costs.The reality is that this strategy can actually lead to a higher total product cost relative to a strategy that focuses on minimizing assembly labor. How could this be? The answer lies in the fact that designing parts to be easy to manufacture tends to increase the total number of parts, while designing a product to be easy to assemble usually reduces the number of parts. Industry research has shown that thanks to modern manufacturing techniques, using fewer parts will frequently be less expensive than using a large number of inexpensive parts.

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At this point, the designers go back to their initial proposals and finalize the selection of processes and materials, as well as fine tune the parameters of each design. The goal is to achieve the lowest cost design for each finalized part that is still able to meet the functional requirements of the product.

What benefits does DFM Concurrent Costing provide during this process?

Besides providing real-time accurate cost estimates, DFM Concurrent Costing serves as the focal point of communication between designers and manufacturers. DFM identifies the major cost drivers for each manufacturing process so that both manufacturing and design can ask the essential cost related questions at the most relevant time. This results in a faster product development process because there are fewer problems to address during the latter stages of development. With Product Costing, product development becomes a more focused and educated effort than previously.

Summary

Involves a small team – usually a combination of manufacturing, engineering, purchasing and a team leader

Minor changes in design, parts only

Typical Savings of 20%

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