40 Places to Remove Cost

By Craig Theisen

Product development teams have key deliverables. Examples are appearance requirements, dimensional and weight requirements, performance requirements, quality targets, project completion and production start dates, project cost target, capital cost target, product cost target, and profitability (ROS, ROA, IRR) targets.

Action is taken when a deliverable goes off course. For example, if the project completion date is slipping corrective action is taken to get back on schedule.

Cost and profitability related deliverables may not be as well managed during projects. Reasons include:

· Other project deliverables have higher priority within the company
· Resources are not available to accurately determine product cost during development
· Costs are only estimates and won’t be accurate until steady-state production
· Team members are too busy managing the other deliverables
· It is less critical to miss a cost target than a product performance or schedule target
· Cost can always be removed during production
· Product development teams are not trained in cost and designing to cost targets

Many costs cannot be removed during production and will stay with the product for life. So, getting cost out of product during development is valuable.

The illustration shows types of cost an automobile headlining system product development team designs into the product. It is the roof lining, sunvisors, lights and assist handles in your car. Removing 1% of cost is $0.88. There are 40 places in direct material, direct labor, and manufacturing overhead where cost can be removed. It should be easy and worthwhile. Over the 500,000-unit life of the product, that $0.88 results in $440,000 more lifetime profit.

1% percent of cost of goods sold is easy to remove during project development. Even 5% is achievable if the development team is equipped to do so. It begins with knowing costs, sharing them with team members, and organizing the capability of the company to optimize the costs. Teams can get very good at this if given goals and resources.