Cost reduction of products: Our approach via competitive benchmarking
A strategy that has proven quite useful in lowering product costs has been to analyse products of competitors first.
In this article, we will walk you through the steps it takes to get you from the initial benchmarking study to a new, better version of your product.
Have you been asked to find new ways to lower product costs lately? Did they also ask you to do so while improving its functionality at the same time? These requests are not uncommon in the engineering world.
Insight in brief
- Rethink the entire solution instead of trying to reduce individual building blocks.
- Have a look at your competitors.
- End the benchmarking study with a creative workshop.
How can you reduce the costs of your product?
As technology drops in price and a wide variety of new technologies gets developed, you must stay on top of the latest trends.
Otherwise, you might predict things like the science and technology magazine Popular Mechanics did back in 1949: “Computers in the future will weigh no more than 1.5 tons.” They weren’t wrong…but they did not know how far out they were going to be! Another example: a company decided to use an RN4020 BLE 4.0 module for serial production in 2016 that now costs around 7 euros. If we compare it to a newer DA14531 with BLE 5.1, which costs around 1.8 euros, you can save 5 euros on hardware by just exchanging your BLE module! I know this is not one hundred percent an apples-to-apples comparison, but you get the idea...
What if you could completely change the current methodology of your product to perform the same function but with fewer resources?
Instead of just trying to reduce the costs of individual building blocks, why not rethink the complete solution to eliminate some of those blocks entirely? Like what James Dyson did with the vacuum cleaner bag.
So, where do you start?
This is our approach:
When cost and time to develop are crucial, we recommend performing a classic cost reduction product exercise together with a benchmark of competitor products. Naturally, this is only possible where existing technologies and competitive products exist. And it is usually more beneficial if your product has “fallen behind” the trend.
Yes, you may argue that this is either plagiarism or just plain laziness. But being lazy by nature is what inspires us to improve things… Think about it, if we as humans weren’t lazy, we would have still been content with walking to our grandma day in and out – even if she were to live far from us. Instead, we invented the wheel, and now we “roll” to grandma!
All new business ideas or products start with a market/product analysis, and one cannot afford to ignore the competition. Of course, you must keep patents and copyright in mind. This leads us to one of the strategies we came to develop during cost reduction processes for products. Let’s start at the beginning:
Cost reduction for a product step by step
The following five steps will guide you from understanding your product to grouping and analysing its functions to the competitive benchmark analysis and cost reduction. Here is how to tackle this challenge.
1. Understand the product
Do what you can to fully understand what you are working with by:
a. Reading the existing manuals and documentation
b. Measuring and testing what you can
c. Dissecting the product and analysing individual components or functions
If possible, try to get two samples of every product you want to analyse: one product to be totally dismantled and studied inside out, while the other will be used as-is to understand the intended use.
So, what are you going to test? With every product, there are always interesting things to measure and to test. For example, from an electric viewpoint, you can measure start-up, peak, and the idle current. If there are batteries, measure the charging current, test the capacity of the battery, and simulate under- and over-voltage scenarios. This will show you how the product behaves under stress conditions and how it manages power consumption.
Sometimes, over-optimistic marketing claims of competitors are discovered or the need to update your own documentation.
During the dissecting phase, it is worthwhile to document how easily the product can be assembled or serviced. That means counting how many screws, clips, cable harnesses, and small parts are present. All of these add to the total costs of the product, not just the material costs. Two similar functioning products can have totally different assembly methods. Some methods include a lot of hand labour, which only makes sense if labour costs are low (which is not the case for a lot of EU countries).
Now that you have an understanding of the product, we are moving on to grouping its functions:
2. Group product components into functions
With this step, the plan is to compare your product to other competitors. Rather than calculating the costs of individual components, you will group all components that perform a specific function together. For example, some products can have touch screens and no physical buttons; some might have buttons and no display. In this case, it will not be useful to have a component group called “Displays” but rather a function group called “User Interface”. Then you can group all buttons and displays used for user interfaces together.
To perform the grouping correctly early in the study is essential. Do spend some time discussing the correct groups as this will be your framework for the rest of the cost reduction study!
3. Apply costing to all functions
Now it is finally time to apply costs. The moment you have been waiting for.
This step of the product cost reduction process can be tricky as some components have multiple functions. For example, a Microcontroller Unit (MCU) can be used for the user interface and to control another defined function like, for instance, a motor.
With these cases, a percentage value can be given to each function. In our example above, the cost of the MCU can be allocated with 50 % to the user interface, 25 % for performing the motor functions, and the other 25 % for connectivity.
In other cases, calculating the cost of each passive component is not always practical and possible. This is where assumptions must be made. What you will need to do so is a diverse team of, for instance, mechanical, electronic, and systems engineers. Everyone analysing the parts they are familiar with and assigning a cost to them.
Costing factors are influenced, for example, by the complexity of injection molding molds or the PCB technology used (for instance, 2-6 layers, flex-rigid or semi-flex). With all these data grouped, you can perform an ABC analysis to visually represent the costing factors. This helps the team to focus on high costing areas of the devices.
During the evaluation, note any ideas or questions to refine later. Questions like: How can we eliminate this cable harness? Is it possible to reduce the complexity of the housing?
4. Repeat the steps above for all competitors
Once your framework is done, you really pick up speed from here. Honestly, I do not know any engineer who doesn´t like taking apart high-tech products to analyse them. There are usually a lot of ah-ha moments on why specific methods or materials were used and other times scepticism on why it was done another way. Write down what can be beneficial to your product!
If you have completed steps 1-4 and documented them well, this is usually enough to start your product improvements.
However, if you decide on developing a new version or concept after the product cost reduction study, we recommend doing what we call an “ideation workshop”.
5. Ideation workshop: End your benchmark study with a creative seminar
The ideation workshop is best done when all the findings and discoveries are still fresh on the minds of all the participants. The timing is of importance here.
We also recommend a diverse ideation team, preferably with some members that did not take part in the benchmark study. This will keep the ideas unbiased, fresh, and out-of-the-box!
Explain the product, operating environment, and the functions that were identified in step 2 to all participants. Ensure that everyone has adequate means of expressing ideas by supplying enough paper, colourful pens, stickers, and so on. Discuss how one can improve, eliminate, or reduce the costs of a function. Let each team member draft a new concept for a specific function and present it to each other. Group similar ideas and refine them with the data from the benchmark study.
And that’s basically it. You are done.
Combine the outcomes of the competitive benchmarking study and the ideation workshop. They will be like vitamin shots to your development team: a good supplementation to kick-off your product development!
Please feel free to send us a message if you need help with the process.
Now is the time to give your products a new edge.