To maximise a product’s return, companies need to determine and carefully manage its costs across its whole lifecycle at an early stage. Lifecycle costing is the process of accurately profiling the costs of a product over its entire life, from its inception to its decline. A product will accumulate costs from the various activities throughout its lifecycle, including its research, design and development, manufacture, marketing and distribution. Businesses also need to consider the product’s end-of-life costs, which could include storage, deconstruction, recycling or appropriate disposal.
At Vendigital, our consultants leverage their in-depth cost and value engineering expertise, combined with our digital platform, to help clients evaluate their products’ lifecycle costs, from the pre-production, development and launch stages to the product’s growth and maturity, then finally, its decline. Having this comprehensive lifecycle costing data from the outset, company engineers and designers can manufacture a product that successfully meets market needs while delivering optimal profit for the company.
Our experienced cost and value engineers leverage our proprietary digital platform to evaluate costs at all phases of the product lifecycle. By producing scenarios that accurately model the effect of any changes, we can apply this data to present the entire costs incurred at every stage.
Key product phases are:
This early phase is critical in terms of the product’s costs. A high proportion of costs are locked in at this point, so a product must be designed to be profitable and sustainable. For example, design decisions will impact the materials used, the components required, the manufacturing methods employed, and the distribution activity, all of which will have a long-lasting impact on the product’s cost.
We work with clients to equip them with the analysis on a product’s total cost at this stage, allowing them to make informed decisions during research and development and product design, keeping these costs to a minimum.
Bringing the product to the market requires significant promotional efforts to raise awareness and demand. Therefore, marketing costs will be at their highest at this point and taper as product awareness increases. New products should be brought to market as quickly as possible once the concept has been developed to drive sales and maximise profitability before competition increases.
It is also critical to maximise the length of a product’s lifecycle to improve the bottom line. One way to achieve this goal is by staggering the product launch across different markets.
During this phase, when product sales grow and CapEx costs remain consistent or increase more slowly, businesses should see increased profitability as the cost per unit drops. While promotional expenses continue, initial set-up costs begin to be recovered.
As the product sales grow, we support clients in optimising the long and short-term supply costs, highlighting areas such as supplier or internal process improvement, component or product specifications, robust tooling and optimum supplier geography and capabilities.
Initial costs should have been recovered during the product maturity phase, and marketing costs will have tapered. Meanwhile, maintenance, repair, and overhaul costs are likely to increase. Combined with heightened competition and product differentiation, profitability will start to decline. We combine our cost and value engineering expertise with our industry knowledge and digital platform to help clients help address cost of mature products, from performing should costs analysis through to determining maintenance and repair cycles.
As sales fall, the product will be phased out. Costs at this stage will include suitable recycling, disposal or storage. At this point, businesses typically seek a replacement product. The product lifecycle and its costs begin again with research and development, refining the model to improve outputs in the next cycle. We work with our clients to help determine the right stage at which to phase out an existing product or whether refinements can be made to extend the products lifecycle.
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The benefits of best practice
With an in-depth knowledge of product lifecycles across a wide range of industries, our experienced consultants support clients in accessing the detailed spend profile for the lifetime of their products at the early stage of their development. Having this in-depth data provides numerous benefits, including:
Maximising product profitability
Providing this detailed data on a product’s lifecycle costs at the start of the process can have the greatest influence on the design, manufacture and delivery decisions, delivering the best possible profitability for the product.
Improving outcomes through collaboration
Bringing engineering, procurement and finance departments together at the pre-development stage helps to manage cost and avoid creep during the ‘New Product Introduction (NPI)’ phases and into production.
Improving strategic decision-making
Many of the best practice processes involved during lifecycle costing can be implemented more widely across the business, encouraging cross-functional collaboration for more informed strategic decisions.
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