Reducing product costs in the brave new Covid-19 + Brexit + Recessionary world!
How competitive are your products locally, nationally and internationally? How have you faired during the pandemic: hibernated, thrived or somewhere in-between? Will Covid-19 have a lasting impact on your customers, markets and supply chain? With Brexit just around the corner, what's the probability of your input costs increasing, margins reducing or being priced out of markets? Will the forecast recession squeeze margins through 2021? Is there anything you can do about your product costs?
To survive a business need to consistently develop high value products and services for its customers. For many decades Value Engineering (VE) tools have been used to create new products that customers value and are willing to stump up the cash for. The VE process is designed to provide a return on the investment and a platform for sustainable long-term growth.
Firms manage the lifecycles of product in their portfolio to maximise value creation for the business and customers. While VE tools are used to create new products, Value Analysis methodologies are used to optimised value, where:
Value = Function/Cost
There are a number of approaches to Value Analysis and one I’ve used recently is a Tear Down Process. In this customer-focused process products or services are developed or redesigned to deliver functionality valued by customers and users. It is more sophisticated than most cost-down techniques that can ignore product attributes valued by customers and concentrate on eliminating costs, which can weaken your offering. The broader scope of VA-TD not only considers removing costs but also looks to create more value for customers in terms of the performance compared to bot existing offerings and known competition. Over time the goal of a VA-TD is to deliver the desired level of functionality and value to customers while eliminate costs, thereby creating a portfolio of highly competitive products that can be marketed and sold in existing and new market segments. The process can also be used to support a business pivot and diversify into alternative markets where redesigning your offering may be necessary to meet different customer functionality/value requirements to your current known markets.
In a recent project working with a multi-disciplinary team in a power engineering firm I ran a VA-TD programme on an existing product, where we got the chance to undertake a detailed and hands-on competitor product analysis. Disassembling their own and main competitor products provided a unique insight that not only helped with our redesign, it also significantly boosted confidence and convinced the team that they can compete with their global rivals. The analysis identified a number of engineering changes that enabled the re-design of the product that reduced parts, input costs (material & labour) and simplified the build process resulting in a 50% reduction in the costs. While this level of cost reduction wouldn’t be delivered on all VA-TD projects the methodology can be used systematically to review and improve the value in the current portfolios with the aim of reduce costs that will improve competitiveness and boost sales performance locally, nationally and internationally.