The Bottom Line: Effective Methods for Decreasing Product Cost and Boosting Margins

In the competitive market of industrial manufacturing, taking out cost whilst improving functionality is critical to get ahead of the competition. Obtaining and leveraging accurate product design and procurement data remains a critical strategy for businesses aiming to optimise efficiency, enhance competitiveness, and drive profitability. However, many businesses simply don’t have this data or know how to best use it.

Read on to delve into the significance of optimising product cost towards the theoretical minimum cost and uncover how to do this by tackling each element. By empirically analysing and challenging the Could Cost and Should Cost elements using fact-based models, value engineering and benchmarking it is possible to eliminate sourcing Does Cost inefficiencies and get closer to the Best Cost.

Early identification of Could Cost drivers

It is largely understood that up to 80% of cost is baked in at the design stage and ineffective design for manufacture is an ongoing source of frustration for production teams. Market leaders are getting this right by involving wider functions early in the development cycle to optimise cost, manufacture and assembly whilst now thinking about advanced Design-for-X (DfX) elements such as customisation, disassembly, re-use, carbon reduction and recycling.

Product design data provides invaluable insights into the factors influencing product and manufacturing costs right from the inception of a product. By analysing design specifications, material requirements, and manufacturing processes, businesses can identify the key cost drivers early in the product development lifecycle. Value analysis is another method by which a business can align and optimise design costs to the relative value of the product function. These proactive approaches enable companies to make informed decisions to mitigate cost escalations and streamline production processes.

Optimising to Should Cost

Even after products have been designed and are in manufacturing and service, it is completely feasible to take out significant product and processing costs. By scrutinising design elements, material selections, and production methods, with Should Cost tools Vendigital can identify opportunities for optimisation without compromising product quality or performance. This data-driven approach empowers companies to redesign products to maximise cost savings, enhance functionality, and meet ever-evolving customer demands. Technology has predictably evolved since your product and associated supply chain was designed, and being crystal clear on what aspects to apply targeted cost reduction to can generate significant value.

Reducing the Does Cost through sourcing

Using accurate design and cost data, such as our Should Cost models or Spend Analytics insights, in sourcing and negotiation activities is a great way to ensure the best price possible within the supply chain. Many procurement teams are not enabled with these data-rich insights and find it challenging to meet top-down savings targets. Vendigital’s approach combines Cost Engineering and Procurement data to rapidly identify and deliver product savings through the lifecycle.

Supply chain design

Effective cost reduction extends beyond the boundaries of the manufacturing facility and encompasses the entire supply chain. Supply chain data facilitates seamless integration with suppliers, enabling collaboration on material selection, sourcing strategies, and cost optimisation initiatives. Designing the best-case supply base is critical for achieving lowest cost products. By leveraging real-time data exchange and collaboration platforms, businesses can synchronise their supply chain activities, minimise lead times and inventory, and negotiate favourable pricing terms with suppliers.

Cost culture

Cost reduction is not a one-time endeavour but a continuous journey towards operational excellence. By fostering a culture of continuous improvement supported by product design data, businesses can empower cross-functional teams to collaborate on cost optimisation initiatives. Regular analysis of design data, feedback loops, and lessons learned from previous projects enable organisations to iterate on design strategies, drive innovation, and stay ahead of the curve in a rapidly evolving marketplace. Often this starts with a successful rapid pilot product that demonstrates what can be done using the techniques describes above.

Whether in design or manufacture, taking a data-led cost reduction approach will unlock huge competitive edge in your market. It can allow for greater margins to invest in innovation or allow business to lower price points. Importantly, establishing this culture and pace within an organisation through successful projects can really set the bar high. Leveraging product design and procurement data is not just a strategic advantage, it’s a prerequisite for success in the modern marketplace.

In our next article we will explain how we apply these methods in a standard process to deliver tangible cost benefits.

Take control of your costs – book a 30 minute slot with one of our cost transformation experts

Curious how you could accelerate the journey to cost reduction in your business? Book a free, no-obligation 30-minute consultation with one of our cost transformation experts to discuss your current operational challenges, specific ambitions and explore tailored strategies to achieve your cost reduction goals.

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