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Why you should care about Design-to-Cost

Posted: 12 Dec 2014 ?? ?Print Version ?Bookmark and Share

Keywords:Design-to-Cost? DTC? product life cycle? design engineering? supply chain?

As a design engineer, you know that what you do affects the cost of your products. In fact, there have been studies that show that choices made during the design phase account for 70% of the life cycle costs of a new product.

To help you make these tough choices, we recommend you adopt the Design-to-Cost (DTC) process. Design-to-Cost uses real-time supply chain data to assess design choices with cost objectives in mind. It takes into account such things as manufacturing lead times, volume pricing, volume capacity, and logistics information, all while your product is still in the design phase. Using this information, you'll not only produce great products, but you'll help your company gain and maintain a competitive advantage.

DTC addresses product costs across the entire product life cycle, including the following:

1. Recurring production costs, including production labour, direct materials, process costs, overhead, and outside processing.
2. Non-recurring costs, including development costs and tooling.
3. Product costs, including recurring production costs and tooling.
4. Product price or acquisition costs, including product costs; selling, general, and administrative costs; warranty costs and profit.

Commitment cuts costs
DTC isn't a magic bulletit's hard work. To do it right, you need to make it an integral part of your product development process. Part of this is making a commitment to address costs at all design reviews. Fortunately, this is easier than it was in the past because companies now have access to real-time data on each of the components in a design. By working closely with your purchasing team and with suppliers, you can have direct access to component costs and availability.

One way that DTC helps keep costs down is by addressing the problem of "creeping elegance." As "elegance" creeps into a design, engineers sometimes specify parts that are difficult to source, have a high logistics cost, or may not be available in sufficient supply. Discovering these issues early in the design cycle saves considerable engineering time and component cost.

Similarly, with accurate and current cost information, you can initiate preventive action that avoids costly supply chain surprises downstream. You can quickly identify other potential supply chain issues, such as parts availability or logistics problems, in real-time. In addition, the DTC process motivates you to explore creating cost-saving alternatives while still meeting design specifications.

DTC also helps prevent unwise budget cuts that may hurt profitability. Cutting design engineering budgets, for example, may cut design costs, but may also result in an inferior product design and drive up material and labour costs. Cutting costs on components may result in higher warranty costs and lower customer perceptions of the end-product.

Being successful with DTC
To be successful with DTC, you must establish cost as a constraint from the outset of the design process. Goals need to be sensible and achievableimpossibly high goals will be ignored and goals that are obviously too low do not generate the commitment necessary to achieve them.

Equally as important, DTC must be a team effort that includes design engineering, management, and supply chain executives. All team members must commit to cost targets, development budgets, and design timelines. And, once established, DTC needs to be continued to the end of the product's life, since additional cost-saving opportunities will arise during the downstream production, operations, and support phases.

In addition to setting achievable goals and establishing a committed team, you need tools that dynamically maintain and update supply chain data for each component in a design. Altium's Active BOM is one of these tools. It supplies live, real-time supply chain data in a single view, as illustrated in the figure.

 Tools for comparing actual vs. target BOM costs

Figure: Tools such as allow you to compare actual vs. target BOM costs.

Active BOM allows you to compare actual BOM cost to target BOM cost before and during the design process and also includes other relevant supply chain information.

Design-to-Cost should be part of your design process. With a committed team and the right tools, you really can reduce product costs and improve your competitive position.

About the author
Ben Jordan is senior manager of Content Marketing Strategy at Altium.

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