Raw materials add direct costs and have implications for almost every other cost driver in this list.
- Added weight can force more expensive packaging and shipping costs.
- Materials with steeper machining, cooling, or storage requirements can force changes to the manufacturing process.
Labor (Time and Cost)
A variety of factors can affect a product’s final labor costs. More complex designs can require more manual labor time. A need for hand wiring, welding, or other specialized skills can introduce the need to support a project with additional specialized workers at higher hourly rates.
- Equipment Investments: Processes that can’t be supported with existing equipment will require investing in new tools or certification of a new supplier. ROI for new equipment hinges on high-level planning factors like anticipated total production volume, energy costs, depreciation costs and required operator expertise (cost of labor).
- Energy: every manufacturing process has an accompanying energy cost that can vary by facility location.
Factors ranging from manufacturing process expertise, to labor rates, to tariffs and transportation costs all go into determining where a product can be most efficiently manufactured
The long-term financing costs of investments in equipment and facilities are determine which design choices are cost optimal. The per product impact of capital costs can vary widely depending on total production volume.
Physical product attributes determine how a product needs to be packaged and stored.
Minimizing supplier costs may help cut costs even after a design is completed. But involving suppliers at the design stage is the best way to open options for mutually beneficial savings opportunities. We provide some added insight on how data-driven product costing can help ensure a productive negotiation in our blog here.