In continuation to our last blog post on optimizing product cost, here we are discussing about optimizing indirect costs during the design stage. As the name indicates, ‘indirect costs’ cannot be unitized to a product but are required for manufacturing the product.
Let us look at those indirect costs that are related to a product development, leaving aside the administrative indirect costs such as Marketing, Office expenses etc. Product cost is comprised of the following indirect costs:
a. Capital Expenses (CAPEX) – Variable cost
b. Cost of Engineering Design – Fixed cost
c. Manufacturing Overhead – Variable cost
These are the methods that can be used to optimize indirect costs while designing a part or a product.
Capital Expenses (CAPEX):
CAPEX includes investments for equipping the production line with machines, inspection tools etc., to manufacture parts or products. Usually such capital investments are made to address more than one part or product requirement and hence cannot be directly appropriated to the cost of a particular part or product.
Key factors that contribute in optimizing CAPEX are:
Avoid having dedicated equipment: Risks are higher with investing on a dedicated equipment intended for a sole product. This could potentially result in high maintenance costs. The equipment could also become a bottle neck due to down-time. This also includes the risk of the obsolescence of the equipment in case of a product failure.
Outsource capital-intensive processes: An alternate for the above will be to outsource such parts instead of purchasing the equipment. This will help in reducing the overheads in case the equipment does not have a continuous utilization.
Optimize tooling cost: Tooling cost is a significant CAPEX to be considered in all product cost calculations. Opportunities for maximizing the investments made in tooling exist by using ‘Standardization’ and ‘Modularization’ techniques in the design stage.
Cost of Engineering Design:
Engineering Design is a onetime fixed cost (for the most part of it, unless there are some design changes required to address quality issues from the field) and is a significant contributor to indirect costs. Usually the first expense for a manufacturer, this can be an iterative and cost intensive activity depending on the nature of the product and technology.
Standardization and Modularization: Conceptualizing the design with built-in modularity for providing additional features and functionalities helps in optimizing the design costs for the long haul. While it may require more hours in the initial stages, the payback of a modular design is usually multi-fold. It enables the manufacturer to launch model line variants in real time to stay competitive, reducing both development time and costs.
Standardization helps in reducing the development cycle time and also in improving the reliability of the design. Using existing designs and processes to build new design saves design cost and accelerates the time to market.
Eliminate unnecessary complexity: More complexity means more cost. The simpler your designs, simpler is the manufacturing.
Avoid over-design: Clients will not pay for performance or features that are might not be necessary but product owners incur the cost of including them.
Understand stated versus implied needs: Many a times, engineers might miss to understand the fine line between a stated and implied need. Understanding the voice of the customer is critical in carving out the stated needs of a product. But, it is the engineer who needs to capture the implied needs, which customers might not always express verbally.
Optimize make vs buy: While buying a part means no design cost, designing it involves significant costs for engineering, reliability and useful life testing before it is approved for use. Usually, proprietary parts or designs are engineered in-house where as non-critical areas can use standard off-the-shelf solutions available in the market. This will shorten the overall project schedule, reduce cost of engineering and also the part cost.
Understanding the impact of these intangibles can help in reducing the part or product cost.
Optimize layout: The manufacturing layout has an indirect impact on the cost of a part or product. The longer a part travels in the layout, the more it is handled manually which in turn adds to the overall costs of producing it. Reviewing the factory layout on these aspects will benefit in saving costs.
Reduce raw material and WIP inventory: Designers should make use of Just in Time (JIT) inventory management techniques during the design stage. For example, using a Loctite as an adhesive instead of a Room Temperature Vulcanizing (RTV) sealant can enable a sub-assembly to be shipped in JIT mode instead of having to give a wait time for the RTV to cure before handling the sub-assembly.
Usage of consumables in the shop floor: Consumables such as glue, lubricant etc., used as a part of manufacturing, can end up being expensive. These are usually procured in large containers and there is possibility of spillage, pilferage of unused quantities or becoming unusable due to drying. Eventually, it results in consuming more than the required quantity.
These are the multiple methods that you can keep in mind while designing a product to keep your overall product cost in check.
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, connect with our experts today.