Long-standing low and recently falling margins in construction are in danger of becoming an expected norm. But does it really have to be that way?
Justin Benson is a Partner at Vendigital, specialising in the automotive sector. Along with Paul Cooper, a Director specialising in industrial manufacturing, he recently shared his insights with TheEngineer
Inspirational examples of industry innovation in response to dramatic shifts in market demand have been a stand-out feature of the past year, with many manufacturers pivoting their proposition to focus on revenue generation during the pandemic.
Rallying to produce everything from PPE to hand sanitiser and ventilators, manufacturers responded to the Government’s calls to increase supply of this vital equipment as part of the country’s emergency response to the Covid-19 pandemic. For many businesses, the biggest part of the challenge was not designing the right product, but industrialising it and bringing it to market within a few weeks, rather than months.
Taking an early-stage design from the lab to high-volume production typically requires significant capital expenditure. In a time-pressured scenario, where demand levels are uncertain, this means the stakes are high. The product may have been tested in the lab, but how will it perform when you scale up to enter into high volume production? Will it deliver value and will it meet customer expectations?
When the Government announced plans to bring forward its ban on the sale of new ICE vehicles to 2030, many of the world’s leading car makers were forced to choose whether to keep making petrol and diesel engine vehicles for as long as possible or fast forward their plans to switch to all-electric production. Since then, a number of major names have announced radical plans to invest in the mass production of affordable battery electric vehicles (BEVs) or in some cases, step back from ICE vehicle production altogether. New regulations, consumer awareness of climate change and cleaner air have substantially contributed to growing demand for BEVs since the onset of the pandemic.
For businesses investing to bring innovative products and services to market as quickly as possible, it makes sense to employ a design-to-cost strategy. This involves treating cost as a design parameter to be achieved alongside other material or performance specifications. Working closely with key suppliers at an early stage in the design process, and seeking their advice on scalability, can help to ensure the end product is reliable, functional and represents value for money. For example, in the automotive sector, a design-to-cost strategy could be used to refine a next generation electric drive train by specifying the lowest cost for maintaining or increasing performance.
As much as 85-90 percent of the lifecycle cost of a new product is built in during the design phase. For innovation-led manufacturers, adopting a design-to-cost strategy bakes in the cost to engineer and manufacture a product early in the process. This enables businesses to optimise returns on investment and boost enterprise value.
A common pitfall when pursuing the industrialisation of a new product at speed, is to develop a ‘gold-plated’ or high-spec product, without realising the knock-on effect this will have on value generation when it enters high-volume production. Innovation businesses can concentrate on developing products that deliver the best overall performance during the R&D process, often leading to cost reviews later when production is under way. It is important to get the tricky balance between cost and product performance right at the outset to ensure the right rate of return for the investment you make and the price you charge.
Leaving cost considerations until a late stage in the design process can also cause unnecessary delays, potentially eroding any early-mover advantage or revenue benefits of launching new products on time. For example, it is not unusual for manufacturers to miss their original production start dates, due to the cost and complexity built in during earlier stages of product design and scaling for manufacturing.
By applying a cost lens to the entire value chain, from design through to production and distribution, manufacturers will smooth the way to market for their innovations and profit more from their commercialisation.
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