By John Busa
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 have a schedule to keep. Of course, 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 the cost of goods sold (COGS)–the amount of money required for producing the goods your company sells. Typically, it’s between 70% and 90% of the gross revenue your company earns. A manufacturing company that could reduce its product costs by just 1% would see its profit rise substantially.
Remember the old mantra that 80% of the cost of a product is created in the first 20% of development? It’s true. 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.
Defining the Challenge
Typically, the stumbling block is knowing how much your designs will cost to produce. 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 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 mean 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 cost without sacrificing functionality, performance or quality.
The solution, of course, is to understand the impact of your design and 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. With them, you can better understand the price tag for changes as they are being considered so you can find the optimal balance among functionality, performance, quality and cost that delivers the maximum value to your customers. You can explore more early design alternatives and eliminate cost earlier in 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-reduction 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 for cost estimates. You always know how much your design is going to cost. You always get an instant update when you make a change to a design. You can make more trade-off decisions earlier in the design process–and drive a significant amount of the cost out of a product before you start producing it.
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.
John Busa is vice president of professional services at aPriori, a provider of product cost management software solutions for discrete manufacturers.