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Michelle Boucher

Are You Struggling with Product Cost? You Are Not Alone.

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New products are the lifeblood of a company, but bringing successful new products to market is not easy. In a new study we are running at the Aberdeen Group, we are examining some of the issues that make it so hard, in particular, what needs to be done to make better product decisions. We are still running this study, but the early findings shared here paint an interesting story.

To start, let’s look at the issues which have the most negative impact on product success (Figure 1).

Figre 1 aPriori Aberdeen 10092013

The top issues are time, cost, and requirements. Obviously, if you get these wrong, it will not be too surprising if you cannot find customers who want your products.  Being late to market has a variety of causes from design issues, poor communication, suppliers slipping on commitments, etc. Managing product cost is also a big issue. However, there are so many sources of cost, it can be very difficult to make the best decisions regarding cost. In fact, designing for cost is one of the top strategies companies are trying to implement, but find they cannot, with 55% saying their design for cost strategy is not working.

Why is managing product cost so hard? The reasons are revealed in Figure 2.

figure 2 aPriori Aberdeen 10092013

Figure 2 shows that what makes managing product cost difficult is the complexity of it. Internally within the company, there are many place cost is stored from different databases to tribal knowledge with individual people. Pulling all this information together to get a consistent consolidated view of the cost of the product is incredibly difficult. Further complicating this there is inconsistency in how cost is assessed not only across different departments, but even from person to person. Plus material costs are unpredictable making it difficult to assess. Then even if it is possible to bring all this information together to make a good decision about cost, it is too late in the development process to have an impact. That last point is particularly important because it is DURING development when decisions have the most impact on the cost of a product (Figure 3).

figure 3 apriori 10092013

However, despite the acknowledgement that products exceeding budget is a top reason to have a negative impact on product success and that product cost is most impacted by development, only 43% report that meeting product cost targets is goal that cannot be compromised during the development of the first version of a product (Figure 4).

figure 4 apriori 10092013

It is not until the second version of the product when cost is made a top priority for the vast majority.

figure 5 aPriori Aberdeen 10092013

Imagine the competitive advantage you could have if it were easier to make those cost decisions early on? If those challenges in Figure 2 were addressed, cost decisions could be made much more efficiently. Then better cost decisions could be made with the first version one of the product rather than waiting for version two to improve profitability. This would make it that much easier to release products on budget and price them competitively, minimizing one of the biggest risk factors of product success.

In my next couple of posts, I will discuss how to better manage product cost by meeting cost targets with the initial release of a product as well as how to take cost out.

 

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