Want to improve your product’s competitiveness by 5 or 50 percent?

A product’s competitiveness is influenced by numerous factors, the most important of which are the level of quality required for the product, production costs, flexibility in production, risks, lead time and efficiency and, naturally, environmental impacts, to name a few.

Products that are structurally flexible and have the ability to adapt to changing requirements are the ones that succeed the best on the competitive markets. When product design contributes to the product’s flexibility, capacity can be easily scaled up, for example, by increasing the degree of automation. Rapid changes can then be made smoothly if necessary.

Cost-competitive products are designed such that the number of different parts (with drawings) to be manufactured is minimized, the product is structurally optimized (use of materials and required strength and weight) and the use of different materials for the product is minimized. In addition, the product has been designed for manufacture/assembly, taking into account the various requirements and opportunities related to the manufacturing methods.

Now that we have identified the factors that influence a product’s competitiveness, we can move on to concrete means for improving its competitiveness. Product costs can be influenced in two ways: through sourcing and through design.

Roughly 5 percent savings potential through sourcing

When companies set out to find ways to lower their product costs, their focus is most often on sourcing, on an approach we refer to as down pricing. Its objective is simple: to procure the product’s current structures, components or the product’s design as cost-effectively as possible.

Many companies favor the down pricing approach for its ease of use: tendering for existing equipment and parts is straightforward – it mostly only requires comparing costs and delivery terms. But, as you can guess, easy solutions seldom produce very revolutionary results. By some estimates, in Western countries, down pricing measures can usually bring approximately 5 percent savings in product costs. In BCC countries, savings can be as high as 30–50 percent; however, this is on the condition of continuous quality control.

Savings as high as 10–50 percent through design

When it comes to reducing a product’s overall costs, it is often more sensible to allocate resources to the actual product design rather than to tendering. The aim of the down costing approach is to redesign a cost-effective product by reducing the number of parts manufactured for the product, which, in turn, lowers the material and installation costs. This approach delves deeper into the product’s core and into the changes that could be made to it through redesign.

The product can be sensibly designed to have lower manufacturing, installation, quality and product development costs. The improvements translate to faster lead times, faster time to market, and a reduction in various direct and indirect costs throughout the product’s life cycle.

Design-based down costing naturally entails a slightly larger investment than sourcing-based down pricing, as redesigning a product demands time and expertise – and money. It thus also requires a commitment from the company’s senior management to provide the opportunity and resources necessary for the redesign.

Down costing cannot improve the cost-competitiveness of all products, however, as products often have “untouchable components,” which, as the name implies, cannot – and should not – be touched when designing a more cost-effective product.

The investment thus involves a small risk that the targets set for it might not be reached. The project requires financing and certain steps before initial information begins to emerge about possible new methods that can help push down product costs.

Despite the risk, the down costing approach offers tremendous potential for cost savings – savings can even be as high as 56 percent. In other words, it can cut product costs in half.

This potential was realized in a down costing project we carried out with one of our customers, where additive manufacturing, or 3D printing, helped reduce the customer’s product costs by roughly 50 percent. 3D printing has introduced entirely new freedoms to product manufacturing that other existing manufacturing methods do not offer. It is always a good idea to determine the potential of technology when the aim is to improve a product’s cost-competitiveness by redesigning it.

Down costing or down pricing? They’re both worth it – but which comes first?

According to studies, up to 70 percent of a product’s lifetime costs arise during the design phase. That is why we advise our customers to consider investing in the down costing approach: it offers unrivalled potential to lower product costs.

However, it should be stressed that down costing and down pricing are not competing, mutually exclusive solutions. The ideal solution is a combination of the two approaches:

After redesign methods have been applied to lower product costs, tendering for equipment and parts is a natural next step that can help further reduce product costs through sourcing methods, resulting in overall savings directly in the company’s coffers.