Value Engineering: 3 proven steps to reduce your production costs in manufacturing through system interventions
Production costs play an important role in most product developments. They quantify the costs incurred for the materials and manufacture of a product. Exceeding the planned production costs means endangering the product's margin – even to the point of unprofitability.
In this article, we will show you an example of how cross-skill and system-wide thinking as a strategy can effectively reduce the manufacturing costs of your product.
Insight in brief
Identify and evaluate influences on production costs at an early stage
Changes in system architecture are helping to drastically reduce production costs (value engineering)
- Interdisciplinary teams show the way to an optimisation of the system architecture or a new design
How can you reduce the manufacturing costs of a product?
The simple answer to this question is usually to let the purchasing department use its negotiating skills to put pressure on suppliers to reduce the price of individual components. Alternatively, you can try to procure cheaper components from another supplier. Both methods are perfectly legitimate and may be considered, but they have their limitations and risks. To be clear, we are talking here not about lower-cost components but about cheaper ones, which may lead to quality problems.
In the following, we will therefore show you other ways to reduce the manufacturing costs for a product. We will look at areas such as system architecture, product design and product layout in order to identify potential for optimisation.
First of all, let's determine which aspect has the greatest influence on the manufacturing costs of a new product development.
Who influences your manufacturing costs primarily?
- Marketing and sales know what your customers and the market need. You can therefore evaluate the features and requirements on the basis of their importance. That importance is then compared with the production cost. Features that are not absolutely necessary are omitted for cost saving. In this way, the company can already save time and effort by not implementing irrelevant features during the design stage.
- Design function also has a major impact on production costs. It is important here to apply cross-skill and system-wide thinking in pursuit of cost-effective solutions. How exactly this works is shown later in this article.
- Purchasing can, as already mentioned, negotiate prices or look for lower-cost suppliers. However, this has only a limited impact on the cost of production as a cost saving technique. If in doubt, remember that it is more important to get good support from a supplier than to squeeze the last cent out of a component.
- Production has a comparatively small impact on product costs if outsourcing or relocation of the manufacturing site is not an option. The production of an existing device can only be optimized to a certain amount and major savings should not be expected as a result. It is more important to pay early attention to efficient and fast assembly during the design stage of the product. However, if outsourcing or relocation of the manufacturing site is an option, then a change in manufacturing can even halve the manufacturing costs. This would be the case, for example, with an existing product architecture with high production volumes and many manual assembly steps where production is relocated to China.
Now that we are aware of these four areas, it is important to identify the price drivers of a product. This enables you to leave parts that have a low savings potential until later on in the examination. It makes sense to use a state analysis to determine the expensive components and functions. You then use a potential analysis to determine different savings options. In most cases, bigger interventions in the system architecture have a major influence on reducing production costs. In the best case, an optimised system architecture not only reduces the production costs, but also delivers other advantages. An example of such an advantage would be an optimized usability for the user.
In the next section, we will show you what the process of reducing production costs can look like in concrete terms by means of cross-skill and system-wide thinking.
Robot vacuum cleaners often have sensors that are used to detect direct collisions with objects or walls. For example, the front-left corner of the robot touches a wall, and the robot now knows that it has to move a little backwards and then to the right. In our product example, there are four of these sensors, one at each corner of the robot. Each sensor is provided with a micro switch, which is connected to the robot's mainboard via cable and plug.
Step 1: Start with the state analysis
For a systematic approach to value engineering for cost reduction, the first step is to get an overview of the individual sub-functions and characteristics of the system that is to be optimised. For our product example, these are the following:
- The collision between object and robot is mechanically detected by four parts of the body (the bumpers)
- Actuation of the bumpers is evaluated digitally by a mirco switch
- Each micro switch is connected electrically to the mainboard via a cable
- After a collision, the respective bumper is moved back to a neutral position by springs
- All four bumpers can be actuated simultaneously and detect collisions
Next we consider the number and cost of the components of the robot vacuum cleaner. The table shows that the sensors consist of many individual components:
The high number of components is a first indication of potential savings. The manufacturing costs are not listed in this table. However, the same basic principle applies here: Many components means many assembly steps and therefore increased costs.
After the current situation has been adequately documented, the creative work can follow.
A single wrap-around bumper incorporates flexible plastic elements as springs. The micro switches and their wiring have disappeared. In their place, the PCB mainboard now includes a sensor that can detect a magnetic field in three axes. A magnet is attached to the bumper and is positioned centrally above the magnetic field sensor. The magnetic field sensor detects any displacement within the magnetic field vector: any movement of the bumper can now be identified in both the X and Y axes.
The optimised sensor system thus consists of only the following components:
To summarise, we have achieved the following benefits thanks to targeted interventions in the system:
- Costs reduced by 65% from 5.20 to 1.80 euros
- Number of components reduced from 32 to 3
- The originally high number of assembly steps has been reduced to just two (insert magnet in bumper and mount bumper in chassis)
- The actual sensor element operates without any contact and is free of mechanical stress, which increases the service life
- Instead of four digital values, the force acting on the bumper can now be determined linearly as a vector. This enables the robot to navigate optimally
In conclusion, it should be noted that the approach illustrated also has disadvantages and risks. For example, it is much more complex to evaluate the magnetic field sensor via a serial interface than to rely on four binary micro switch signals. The sensor may have to be calibrated during production. In addition, major changes to the plastic parts, electronics and software are necessary. A final assessment must therefore be made as to whether this intervention is worthwhile and what the minimum production volume would be for a break even. With a well-prepared production cost analysis, however, this decision is easy.
3 key takeaways for cost reduction techniques in manufacturing
We have touched on the following factors in this article:
- The early involvement of marketing, sales, design, purchasing and production allows you to identify and evaluate influences on the costs of production.
- Optimisations or redesigns of the system architecture help to significantly reduce production costs.
- The route to a new system architecture is a creative workshop with interdisciplinary teams. Cross-skill and system-wide thinking are the future for production-cost reduction. Focused questions support the process.
In this article we have shown you just one aspect of our value engineering methodology for reducing production costs. If you have any questions, please don't hesitate to contact us without obligation. We support you with interdisciplinary teams and our tried and tested 'methods toolkit' to get your production costs under control and optimise your product's margin.