Your product costs are twice what they should be.
January 12th, 2011
Your product costs are twice what they should be. That’s right. Twice.
You don’t believe me. But why? Here’s why:
If 50% cost reduction is possible, that would mean you’ve left a whole shitpot of money on the table year-on-year and that would be embarrassing. But for that kind of money don’t you think you could work through it?
If 50% cost reduction is possible, a successful company like yours would have already done it. No. In fact, it’s your success that’s in the way. It’s your success that’s kept you from looking critically at your product costs. It’s your success that’s allowed you to avoid the hard work of helping the design engineering community change its thinking. But for that kind of money don’t you think you could work through it?
Even if you don’t believe 50% cost reduction is possible, for that kind of money don’t you think it’s worth a try?
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Mike Shipulski
I disagree with your last statement. Done right, product quality improves with cost reduction.
The cost reduction that William Ketel alludes to is incremental and minimal, without much bang for the effort. To get a 50% reduction in cost requires a new approach to the design, with an emphasis on combining functionality and design optimization. The objective for cost reduction should not be a focus on just eliminating parts, but on a design that doesn’t need the parts. At first this appears to be difficult, but with guidance and practice becomes second nature. This actually leads to an increase in quality. I have seen increases in the first pass yields and descreases in RMAs of products where we redesigned products with ~50% cost reductions. Smart design leads to high-quality cost reductions.
Bill,
I agree with you that when you realy want to get a cost reduction you must set high norms. Five procent cost reduction can easily be achieved by some minor things. But when you really want to save money you have to set a goal like you do. Then you must go outside the normal roads and think differently. But I’m afraid people don’t dare to go that way. I have the feeling, when you read the specs, that people want to have proven technology. Who dares to take the first step.