Why Engineers Should Care More About Product Costs

Key Takeaways:

• Engineers rarely prioritize product costs because they are more focused on other aspects of product development, such as form, fit, and function
• Lack of data (and the lack of trust in it) are two key factors. Digital solutions like aPriori remove the roadblocks including traditional cost and time lags like Excel
• The result is accurate data to reduce costs, faster decision-making, more effective product development decision justifications, and accelerated time to market

The Full Article:

In the face of global trade wars and high prices on raw materials and labor wages, manufacturers must carefully consider every dollar and do more with less. For product development teams, the burden of proof falls squarely on their shoulders and it starts with the design engineers who wield the most spend influence in the process.

A product’s design accounts for approximately 80% of its total cost, yet design engineers have not traditionally prioritized cost. However, the design’s cost typically isn’t evaluated until the cost engineer reviews it. If it is cost-prohibitive, it has to go back to the design engineer to refine it in 3D CAD to meet cost targets.

Moreover, these engineers often lack the right data that a manufacturing simulation solution (like digital factories and supplier data libraries) provides to analyze the design properly or ensure that the required materials and parts from suppliers are cost-effective. Others may not have full confidence in the data they are provided or simply do not have the means to access data quickly to accelerate design decisions.

Why Engineers Don’t Prioritize Product Costs

Engineers do care about product costs in manufacturing, but their focus tends to be on the following:

1. Functionality and Quality: Engineers are typically concerned with the design, functionality, safety, and quality of the product. Cost is certainly a factor, but their priority is often to ensure that the product performs to specifications and is manufacturable.
2. Different Expertise: While engineers can identify and solve manufacturing challenges, they might not have the same level of financial expertise or the same direct access to cost data. Expenses such as manufacturing overhead costs are often managed by those with a finance, supply chain management, or business operations background.
3. Cost Control May Come Later: Engineers might not always be directly tasked with optimizing the cost of direct and indirect materials, labor, or production processes. It is often the responsibility of manufacturing engineers, operations managers, or cost analysts. Engineers may be asked to redesign components to reduce costs, but that typically happens later in the process.
4. Disconnect Between Teams: Sometimes, there’s a disconnect between the design team (engineers) and other teams (such as operations, procurement, or finance). Engineers might be unaware of cost constraints or don’t fully understand how their design choices can affect the cost of manufacturing. Conversely, those managing costs may not be fully aware of design engineers’ technical limitations.

A Forbes article notes that organizations should double down on their efforts to align their technology strategy with their business goals. Tools like digital twins, predictive analytics, and causal AI aid in this process to better anticipate and mitigate risk, improve processes, and enhance customer and staff experiences.

The Pitfalls of Cost Apathy in Engineering

Using data analytics and centralized knowledge management to make smarter, more insight-driven, cost-effective decisions further encourages a more cost-conscious culture. Without them, engineers might inadvertently compromise costs. The pitfalls of not considering costs in the design phase include:

1. Over-engineering:

Problem: Engineers may design products with high-end, expensive materials, complex features, or advanced technologies that may be unnecessary and impractical from a market perspective.

Consequence: The organization must make a decision to either: increase the product price leading to lower sales and profits OR maintain a competitive price while accepting lower margins and increased time to reach a return on investment (ROI).

2. Inefficient Manufacturing Processes:

Problem: Engineers may design products that are difficult and/or expensive to manufacture. For example, they may create intricate designs that require complex manufacturing methods or specialized machinery, including unnecessarily high tolerances that require multiple machining processes, without considering the cost implications.

Consequence: These designs can lead to inefficiencies in production, higher labor costs, longer lead times, and the need for multiple steps or utilizing expensive equipment, all of which drive up overall product costs.

3. Missed Cost-Reduction Opportunities:

Problem: Engineers may not always be aware of opportunities to simplify designs, select less expensive materials that would not compromise product quality or functionality, or collaborate with teams downstream enabling them to get design costs right the first time.

Consequence: Without input from engineers on cost-cutting measures, the company may miss out on valuable opportunities to lower the cost of goods sold (COGS), impacting profit margins.

4. Increased Inventory and Waste:

Problem: Engineers may design products with parts that are expensive to manufacture or source, leading to more design iterations and engineering change orders (ECOs), especially in the late product development stages. Moreover, if an unnecessary yet complex manufacturing process is selected, it will increase the part’s cost since there is a limited skill set available to produce it without quality issues.

Consequence: High material waste or parts that require excessive handling can increase production costs and inventory overhead or trigger costly ECOs. Additionally, unsold products or excess inventory can tie up resources and reduce cash flow.

5. Difficulty Scaling Production:

Problem: A product that is well-engineered but expensive to produce or difficult to assemble may not scale easily as demand increases, potentially resulting in ECOs to remediate these issues.

Consequence: Inability to scale up production efficiently can lead to delays (e.g., ECOs), production process bottlenecks, or the need to invest heavily in capacity expansion, all of which can increase unit costs.

Other pitfalls include:

• Designs or products that do not align with business strategies, compromising cost targets and revenue growth
• Highly complex, costly designs that increase development time (many iterations, testing) that slow time to market, concede market positions, and result in missed opportunities
• More expensive and/or higher production designs or products that risk sales volume goals, eat into profit margins, or the ability to, at a minimum, breakeven
• Products that are not environmentally friendly, resulting in material and energy waste, are potentially harmful to the environment, and could lead to regulatory fines that increase your product cost and loss of consumer trust
• Siloed design teams, resulting in a lack of collaboration with cost, sourcing, and production, which leads to higher costs and more risk

The good news is that many of these design-at-the-cost-of-expense issues can be circumvented or at least mitigated.

How aPriori Enhances Focus on Product Costs Within Existing Engineering Workflows

Ultimately, it boils down to manufacturers creating and fostering a more cost-conscious culture across the organization, and specifically, product development teams. Here are a few strategies to achieve it:

1. Leverage digital manufacturing simulation in the design phase: By leveraging CAD, designers can gain real-time, data-driven insights early in design, which is the most critical time in terms of cost. aPriori has refined product development benchmark data over the course of 20 years, enhancing precision and providing more detailed, implementable feedback. This easy-to-use solution also onboards engineers faster and builds a critical base of institutional knowledge with each data input.
2. Reduce part costs by up to 50%: With solutions like aPriori, design engineers can reduce costs by as much as half in this stage. They can quickly analyze product should costs (including direct material costs and indirect costs like factory overhead), explore design and cost trade-offs, consider alternative raw materials and processes, and run what-if scenarios to see how they influence cost without negatively impacting the design. Listen to Oran McBriarty of Thompson Aero Seating explain how the company gained a 68% savings on their most expensive parts, using aPriori.
3. Conduct value engineering: Design engineers can weigh design to value (DTV) vs. design to cost (DTC). They can optimize design through value engineering, a set of processes and methodologies used to increase product value and meet target costs without compromising quality or performance – all in seconds.
4. Work around supply chain issues: By leveraging manufacturing simulation supplier data, engineers can design products that work around supply chain issues (shipping delays, thefts, etc.) and the associated period costs (higher supply rates, foreign currency exchange rate fluctuations). As a result, they can reduce the supply chain from several weeks to a few days, implement Zero RFQ capabilities, meet target pricing, and improve cash flow.
5. Break down silos: Costs cannot be fully optimized if each product development team is working in a silo. Working collaboratively and from a centralized database facilitates more efficient workflows. It ensures all team members are on the same page in reducing costs at each stage of product development, and mitigates supply chain issues, engineering change orders, and material and energy waste. As a result, product development teams more effectively align with an end-to-end business model that is efficient, agile, profitable, and competitive.

The Benefits of Product Cost-Focused Engineering

Design engineers are the seminal point for reducing the cost of a product. A product’s design is the driving force in this cost. Solutions like aPriori provide immediate, highly detailed insights that design engineers can leverage to optimize a product’s quality and performance as well as cost targets. Other benefits include:

1. Actionable design and cost insights for increased finished product quality, efficiency, performance, and greater profitability.
2. More resiliency and faster decision-making align with business goals and help navigate disruptions, including supply chain issues, inflation, and other geopolitical risks.
3. Streamlined collaboration across the organization and product development teams, thanks to shared manufacturing insights visibility in an intuitive, user-friendly platform, from Design to Source.
4. Less design churn, reducing waste, iterations, and engineering change orders, accelerating time to market, creating a stronger competitive advantage and higher profit margins, and further reducing costs.
5. Better long-term planning and creating a cost-conscious culture across the organization ensure product and corporate sustainability. Additionally, utilizing costs more efficiently today ensures product innovation for tomorrow.

Shift From Design-Centric to Holistic Design

Design is central to product development. However, it isn’t and shouldn’t be the sole focus. In a highly competitive environment, every stage of product development must be optimized for cost. aPriori can facilitate a more cost-conscious focus for design engineers to ensure that the total product cost is aligned with cost targets and business strategies. In turn, it will lead to greater profitability, which can drive more innovation and a competitive advantage.