How the Best-in-Class Take Out Cost
As I mentioned in my first post, it is the second version of the product that typically focuses on cost reduction. With that in mind, we took a look at some of the best practices for removing cost from a product. To do this, we identified Best-in-Class companies as the top 20% best performing companies who when compared to competitors are:
- 42% times more likely to meet product cost targets
- 45% times more likely to achieve launch dates
- 44% times more likely to bring in expected revenue targets
- 21% times more likely to attain their quality targets
- Realize a 13% increase in profit margins over the last 2 years
Then we looked at what these Best-in-Class companies are more likely than their competitors to do to take cost out of products. It is these practices that are making the difference in their performance.
The first question is where do you start? The Best-in-Class start by referencing what past products cost and what the existing product costs (Figure 1).
When looking for opportunities to take out cost, it makes sense to reference what was done in the past and apply that to new products. In addition, to understand progress, the Best-in-Class are 34% times more likely to have access to what the new product should cost.
Then, using those references, Figure 2 shows what the Best-in-Class are more likely to do to analyze product cost.
The Best-in-Class are 30% more likely to compare different BOMs. By doing this, they can identify cost drivers within the product and look for alternative components that may be more cost effective. They also look at the cost of different designs. This involves the materials used as well as the geometry and manufacturing processes used to product the part. These analyses provide further help to identify cost drivers and where to focus redesign efforts to take cost out.
To enable these analyses, the Best-in-Class are more likely to take advantage of technology (Figure 3).
Strikingly, the Best-in-Class are 70% times more likely to use a product cost management and estimation solution. By using a solution like this, they are able to evaluate more alternatives, accurately, in less time.
Furthering this, the Best-in-Class are 2.6 times as likely to use feature based cost modeling. Feature based cost modeling is a capability of a product cost management solution. It allows users to evaluate a part design in detail and identify exactly how the geometry of a part feature will impact the cost of the product.
With this insight, the Best-in-Class have the needed guidance to make better decisions about the shape of a part so that it may be manufactured at less cost, while still meeting design requirements. It is through the use of these technologies that the Best-in-Class are able to more easily evaluate the options in Figure 2 that have allowed them to see the 13% increase in product profitability.