In this blog post, we will discuss various factors that influence product cost and methods that can optimize product cost during the design stage.
Typically, product cost is comprised of direct and indirect costs.
- Direct costs are costs related to the product which includes direct material and direct labor, and can be assigned in clear terms.
- Indirect costs are costs related to the facility, capital equipment and professionals engaged in an organization. These costs need to be distributed across multiple products that the organization produces at a given time. It includes capital expenditure (CAPEX), cost of the engineering design and manufacturing overheads.
Let us look at the multiple methods that you can keep in mind while designing a product or a part, to keep your direct costs in check.
Optimize Direct Material Costs:
Cost of the material used in creating the product accounts to almost 45% to 60% of the total cost of a part or product. So, reducing direct material cost can reduce the total cost.
A careful review of the material along with best practices such as standardization and modularization would be very effective in optimizing the total costs.
- Focus on functional value: Avoid design practices that result in poor yield i.e. higher rejection of parts during manufacturing process. For example, Adding the cost of a part unknowingly by specifying tighter tolerances or features that necessitate expensive tooling or incorrect dimensioning.
- Reduce parts count: Follow a lean design approach to find opportunities for either combining or eliminating a part.
- Use less expensive raw material: Designers should avoid using expensive materials when the requirement is only for a ‘good’ material.
- Use high volume parts: Implement part standardization for frequently used parts.This saves indirect overheads such as material handling and purchasing, reduces inventory and cost per part through Total Cost Productivity (TCP).
Optimize Direct Labor Costs:
Cost for manufacturing is directly dependent on product design which makes it essential for product designers to follow practices that optimize overall costs.
- Simplify manufacturing methods: Reduce the number of parts, eliminate fasteners and interconnects, design for top-down assembly.
- Optimize manufacturing time: While designing, keep in mind the machine set-up and changeover times. Use the right jigs, fixtures and tooling and follow concepts such as Single Minute Exchange of Dies (SMED).
- Reduce required skill-level: Design products that are simple to manufacture, assemble and test, thereby reducing per hour labor cost.
Design Group has helped equipment manufacturers and users in reducing their total product cost through implementation of various engineering methods like lean design, part standardization and modularization. If you are looking for ways to optimize your product cost, talk to our experts today.
In the next blog post, we will discuss the methods that can be used to optimize indirect costs during early product design stages.