Who owns cost?
May 12th, 2010
I’ve heard product cost is designed in; I’ve heard it happens at the early stages of product development; And, I’ve heard, once designed in, cost is difficult get out. I’m sure you’ve heard this before. Nothing new here. But, is it true? Is cost really designed in? Why do I ask? Because we don’t behave like it’s true. Because was it was true, the Design community would be responsible for product costs. And they’re not.
Who gets flogged when the cost of new products are too high? Manufacturing. Who does not? Design. Who gets stuck running cost reduction projects when costs are too high? Manufacturing. Who does not? Design. Who gets the honor of running kaizens when value stream maps don’t have enough value? Manufacturing. Who designs out the value and designs in the cost? Design. (That’s why they’re called Design.) If Design designs it in, why is the cost albatross hung around Manufacturing’s neck?
It sucks to be a manufacturing engineer – all the responsibility to reduce cost without the authority to do it. The manufacturing engineers’ call to arms –
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Reduce cost, but don’t change anything!
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Say that out loud. Reduce the cost, but don’t change anything. How stupid is that? We’ll it’s pretty stupid, but it happens every day. And why constrain the manufacturing engineers like that? Because they don’t have the authority to change the product design – only Design can do that. So you’re saying Manufacturing is responsible for product cost, but they cannot change the very thing that creates all the cost? Yes.
What would life be like if we behaved as if Design was responsible for product cost? To start, Design would present product cost data at new product development gate reviews. Design would hang their heads when product costs were higher than the cost target, and they would be held accountable for redesigning the product and meeting the cost target. (They would also be given the tools, time, and training to do the work.)
Going forward, Design would understand the elements of product that create the most cost. And how would they know this? First, they would spend some time on the production floor. (I know this is a little passé, but it still works.) Second, they would do Design for Assembly (DFA) in a hands-on, part-by-part, piece-by-piece way. No kidding, they would handle all the parts themselves, assemble them with production tooling, and score the design with DFA. That’s right, Design would do DFA. The D in DFA does not stand for Advanced Manufacturing, Operations, Supplier Quality, Purchasing, or Industrial Engineering. The D stands for Design.
I know your manufacturing engineers are in favor of rightly burdening Design with responsibility for product cost. But, your Lean Leaders should be the loudest advocates. Imagine if your Design organization designed new products with half the parts and half the material cost, and your Lean Leaders reduced value waste from there. Check that, Lean Leaders should not be the loudest advocates. Your stockholders should be.
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Mike Shipulski
Mike;
Another great post to get us thinking, although I think you need to expand on product cost. Not everyone realizes that we (the designers and engineers) need to take into account potential after the sales costs. When the “lowest cost” part fails in the field you incur warranty repair costs (or the customer incurs a service bill). By fails I don’t just mean breaks. I believe than anything that lets the end user down during the life of the product is a failure. I prefer to think of it as needing to “increase the lifetime value” of the parts rather than ” reduce the cost”, although the two actually mean the same thing.
You missed a great sales opportunity in the last three sentences. How about “… designed new products with half the parts and twice the material value…”?
Unfortunately too many learn this the hard way. It’s difficult to “enlighten” the younger engineers and designers and it seems like a never ending battle with the non technical cost reduction proponents.
Thanks;
Doug
Mike…I think you wrote this just for me. As a veteran MfgE that has been lean master-trained, if there is only one point I could make to the designers whom I work with, it’s that you need to spend the time in the beginning (yes…NRE) to prevent recurring cost on the “other side” because there is nothing on the other side that will fix an inefficient-to-manufacture design. Lean will not do it. This is a really hard thing for executive management to understand for some reason. I have seen a LOT of money thrown into the application of lean methodologies to a limping production line with the expectation of getting a sustained fix. The operative here is “sustained”. If a lean method is not sustainable, here’s a hint: “Look at the product design”. So if you still don’t believe in that, and you’re going to (try to) lean out an inefficient product design anyway, you might be able to finance the lean effort from the money that was left on the table from the design activity…for a little while.
If you are reading this post, consider attending Mike’s workshop at the 2010 International Forum on Design for Manufacturing and Assembly next month. You’ll learn more than you might think about cost ownership.
Mike…I see your point. I think there might be a very large word missing form your article. That word would be COMMUNICATION. This affects the ability to design products which are of high value as well as lean manufacturing. I started my adult life as an auto mechanic and know how difficult poorly design systems can be to assemble. I believe it is a time to put the “Team” back into Lean Manufacturing and include design engineering as part of the team instead of letting them hide on “the other side” of the wall.
Mike:
Excellent points! Concurrent engineering is the answer, where all the engineering teams, including manufacturing and sales work together to create the product – but sadly it does seem to have really caught on. I hope the culture will change for the better.
-Sandip
Mike:
As Sandip mentioned, Concurrent Engineering is important. However, as you probably know, having a formalized Product Life Cycle to define roles and responsibilities between the functional areas through a product’s life from initial concept through end of life is critical. Having a PLC enables Concurrent Engineering to function properly without continuous negotiation between the functional areas as to who is responsible / who is to blame. Many PLCs have an initial phase (concept, Phase 0, Requirements / Plan, etc.) where Design and Marketing are responsible for jointly setting the product requirements including preliminary target costs. Manufacturing needs to believe that the target costs are “reasonable” prior to agreeing to move to the next phase. Over time, as the phases progress, Manufacturing picks up the responsibility to refine the cost models and product costing. If there is a disconnect at any point, then the viability of the product needs to be examined since the ROI may no longer be accurate. Have multiple phases provides ample opportunities to make sure the overall product is still “on target”.
Ira
Mike, I hear your “call to arms”, which is exactly why I started a “Value Engineering” group about 6 years ago for the tier one manufacturing company I work for. Cost Avoidance is our battle cry. The group consists of senior manufacturing engineers, senior and principal level mechanical engineers, electrical engineers, component engineer, all trained at some level in Six Sigma and L.D. Miles’ Value Methodology. We are also part of the Design Services organization, not operations.
We perform DFA as early as possible for internal designs and work hard to convince our customers to let us be involved early in their design phases as well. We use the principals of Boothroyd-Dewhurst & Lucas, perform MOST analysis with physical products or prototypes and hold DFMEA reviews with cross functional members, not just Mech Engs.
The Value Engineering concept has been a great success with support all the way through executive management.
Although cost reduction of existing product is mainly associated with VAVE, it’s early involvement, life cycle awareness and cost avoidance that has the greatest potential for product success.
Great context. Thanks for posting. Value Engineering, DFMA, and the other tools that bring together design and manufacturing can surely benefit from a loud “call to arms.” The economy will be the better for it.