Are you aware when you cause costs? Do you believe that they happen at the moment when you select the supplier? Or they arise when you order the service? When you pay the bill?
NO! Much, much earlier… The costs
start “in our head”! Similarly, as it is required for the “click
” to
happen in the head, to take a decision on cost reduction in your company, an awareness
is required to realize that costs are born at the same time as our ideas. Which
we, eventually, bring to life.
Over 80% of
the costs arise while the product is only a design!
The product, which we want to produce and then sell to a customer, starts as an idea in our head. When this idea lands as a concept on a paper, it becomes a goal. By this time it carries desired architecture with already built-in of approximately 80% of the target costs /David Anderson/. Namely, during the idea creation and its design on the way towards the final solution, the product has defined shape, the color, and, what is the most important, the material made of that defines the technology to be produced by.
Since most of the costs are defined during the product conceptualization, it is important to introduce cost awareness in very early stage of the product life cycle. Once decisions of the costs in the conceptualization phase of the product are made and locked-in, it’s not only economically not viable to remove them but also quite difficult to decrease them as well. Because you are limited to structurally influence only the remaining 20% of the OPEX. It might sound to be still a lot, but not be misled! With good negotiation, where you mostly optimize the price, even its decrease for several percentages might still not be competitive enough. Because sunk costs of the development of the product might hamper vital adjustments and taking you from the cutting edge of competitiveness.
Days “We
develop – you produce!” are definitely over!
The product and the technology life cycle is concerned with time and costs of developing the product and, inherently, the technology produced by. As well as the timeline of recovering costs, and modes of making the technology yield a profit proportionate to the costs and risks involved. So, all involved in a value chain of a product along its entire life cycle should be involved in decision making process, also regarding the costs.
Multifunctional
teams help to optimize the costs during the conceptualization of the product…
And since the development is never “one man band” approach, the multifunctional teams should deal with this challenge.
Such teams are advised to consist of
professionals covering:
·
R&D,
technology, quality, production, procurement, but also· sales, and sometime even
· buyers can help expressing what functionality of the product they value most /more
· and don’t forget the (cost of) finance, support, legal & more and more often the compliance
· as well as the suppliers.
The purpose
of multifunctional approach is to introduce competitive price / performance!
We, the mechanical engineers, are able
to produce everything – even to send a rocket on the moon. But looking through
a prism of the economy, the costs might interfere with the image in a mirror of
market competition. Therefore the intention, besides focusing on the
functionality of the product, is to embrace cross-functional areas. Because it’s
insufficient consideration sooner or later leads to unnecessary (higher) direct
or incidental costs due to lack of:
·
of
systematic optimization of the costs· simplification in production and assembly, product distribution,
· availability of the product on the market, its quality and reliability to use
· easy maintenance and complaint solving procedures
· safety
· ability to further upgrade the product functionality
· environmental demands
· …
SCORE can
help you on the way!
With implementing comprehensive
mechanisms of SCORE we approach the target
costs that aim to balance requirement boundaries of all participating in such
multifunctional teams.
Cost killer or rather an integrative CRO?
Please recognize the right role of a
person that should discriminate the wish-list form of requirements and balance
these requirements against customer expectations & company resources. So, the
cost killer – rather than a “killer”, he or she should be an integrator of
changes in the company at least on a cost side of the P&L. And if you let
him or her be a Cost Restructuring Officer (CRO), he or she should definitely justify
your trust!
So, what is a profile of the cost
killer? Read us in the next blog!
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