BHR Global Associates, Inc. is dedicated to helping companies bring their products to market successfully. We can help with finalization your design, to helping find the right source at the right price, help you maintain a solid on going supply chain and help you sell the product through our team of sales professionals. Our blog will supply information and details on successes, failures, and road blocks to avoid in bringing products to their full potential.

Tuesday, November 06, 2012

What will your design cost to produce?

As a design engineer, you are under tremendous pressure to create quality products that differentiate your company. You have requirements for form, fit, and function, and you also have a schedule to keep. Of course, your company is under tremendous pressure too, especially in this economic environment. Profit margins are tight and budgets are even tighter. In the never-ending battle for market-leadership, design engineers play a larger role than they may realize in determining a company's success. But, it's not just about which company has the best products; it's also about which company does a better job of controlling its product costs. For manufacturing and product companies, the biggest expense on the quarterly income statement is Cost of Goods Sold, or COGS. COGS is the amount of money required for producing the goods your company sells. Typically, the number is between 70 and 90% of the gross revenue your company earns. Because COGS in manufacturing is so high, a company that reduces its product costs by just 1% would see its profit rise substantially. Targeting costs in the development stage So where do you fit in? Remember the old mantra that 80% of the cost of a product is created in the first 20% of development? It's true, as you likely know from your own experience. That means that design engineering is responsible for the largest portion of your company's product costs. You and your colleagues are in the best position for increasing corporate profitability if you can reduce the cost of the products your company sells. So what's stopping you? Typically, the stumbling block is actually understanding how much your designs will cost to produce in the first place. When you are working in your CAD program, every change you make to a design has an impact - positive or negative - on how much the finished product will cost. You may have a general idea how a particular change - such as changing the material - might affect cost, yet the only way to know with certainty is to have someone generate an estimate or a quote. That requires either calling in a cost expert or having the purchasing department contact your suppliers. This can easily become a frustrating back-and-forth process that might take days or weeks. But with deadlines looming, who has time for that? The entire process - from considering a design change to understanding its cost impact - is incredibly inefficient. And it's likely preventing you (and your team) from considering many design changes that could result in a lower product costs without sacrificing functionality, performance, or quality. Project cost management tools The solution, of course, is to understand the impact of your design and cost implications associated with the trade-off decisions involved every time you made a change. Your CAD system may not support that today, but there are project cost management tools that work with your CAD system to give you real-time cost information without slowing you down. This is especially important in those critical early days of the product development cycle. As a general rule, the higher the impact a proposed design change has on a product's cost, the more radical the change is in terms of its design. These are typically changes you would make early on in the product development cycle. Access to real-time cost assessments from the beginning can help drive significant and measureable cost out prior to production - ultimately reducing the COGS and improving the company's bottom line. Moreover, product cost management tools enable you to better understand the price tag for any change as it is being considered so you can find the optimal balance between functionality, performance, quality, and cost that delivers the maximum value to your customers. You can explore more design alternatives and eliminate cost throughout the product lifecycle resulting in fewer changes later in development when they get incrementally more expensive. Most importantly, these tools can help you avoid a number of profit-killing pitfalls including missed cost targets, delayed product launches, late-stage product redesign, and, post-launch cost-0reduction efforts. With these product cost management tools, your CAD system acts as the primary data source for geometric information. The tools should integrate tightly with your CAD, and evaluate geometric cost drivers directly from solid models. As a result, you don't have to wait days or weeks for cost estimates. You always know how much your design is going to cost no matter how many changes you make. Cost updates are made instantly as you make a change to a design. Equipped with this information, you and your colleagues can make smarter trade-off decisions in every phase of the design process while also driving out significant costs along the way. And as engineers use the system, they are learning to design for cost-effectiveness from the outset - further accelerating design cycles and increasing efficiency while building cost proficiency as a core competency. Focus on new designs, not fixing old ones While the ultimate result of having real-time access to product costs will help your company boost its profit, that same knowledge also helps your teams meet their product cost-reduction goals. Equally important, making changes early on reduces the amount of re-work needed after a product launches. Routing more cost out up front means there won't be much cost left to root out on future generations. That allows your team to focus on new designs and innovation rather than fixing old ones. Today's engineers are tasked with creating high quality, innovative products and parts that are safe and delivered on time. But more and more, they are also asked to consider the cost of the product in order to improve the corporate bottom line. Rather than settling for small, incremental cost savings after the fact, real-time product cost management tools enable design engineers to affect cost savings from the get-go. Savings can be re-invested into new R&D programs and even more innovative products that increase revenue and drive up market share. Sounds pretty good, right? And possible because you knew what your design would cost to produce in the first place. Thanks to John Busa


Post a Comment

<< Home