Cost Optimization Design to Cost—What It is and How It Works

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In product development, cost optimization plays an essential role. With Design to Cost, all incurred costs can be planned and reduced—but the right methods must be applied, such as value analysis or target costing.

Product development is increasingly under pressure to develop cost-effective products. With traditional approaches, higher costs often arise at the beginning of series production than anticipated. However, at this stage, it is too late to save costs without extensive design changes. Design-to-cost methods implemented beforehand can provide a solution.

Design to Cost—What is It?

The term Design to Cost (DTC for short) is used inflationarily today, and research often does not provide a comprehensible description. Therefore, it is important to understand that Design to Cost is not a described method but an undefined umbrella term.

The DTC approach consists of many different, well-documented methods and cannot be described uniformly. The use of the right methods in a design-to-cost project fundamentally depends on the objectives, which can vary greatly. Possible objectives include:

• Process cost optimization
• Product cost reduction
• Life-cycle cost optimization
• Optimization of Total Cost of Ownership (TCO)

Methods and Techniques in a Design-to-Cost Project

To achieve the objectives in a design-to-cost project (development project), various methods and techniques are used. However, the terms methods and techniques are not always clearly distinguished.

Possible DTC methods include:

• Target Costing: This involves systematically determining the target costs for the product and its components
• Reverse Engineering: Reverse engineering provides detailed information about cost differences compared to competitor products
• Experience Curve Analysis: The analysis reveals possible cost reduction potentials and the cost gap to the competitor
• Quality Function Deployment: The focus here is on customer requirements and competitive comparisons. The aim is to avoid over-engineering.
• Value Analysis: By analyzing functions and functional costs in an interdisciplinary team, new solutions with significant cost reductions are created.

Cost Reductions Through Design to Cost of Up to 60 Percent

By combining several methods, cost reductions of 15 to 60 percent can be achieved in a design-to-cost project.

Applied techniques for optimizing development projects include:

• Creativity techniques
• Research
• Interdisciplinary teamwork
• Visualization

This is How Design to Cost Works in the Development Process

In most cases, a DTC project involves the development of a product. This can be a successor product or an entirely new product. The approaches then differ in some aspects.

Due to the ongoing intensification of competition, it is no longer sufficient today to use just one method, such as value analysis. While this always achieves cost reductions, additional cost-saving potentials remain undiscovered.

Therefore, it is important, based on the client's objectives, to select and combine various methods. This is fundamentally part of the preparation for a DTC project.

The Critical Success Factors

The following factors contribute to the success of a DTC project:

• Clear goals and requirements
• Analytical ability
• Creativity

Goals and requirements focus the DTC work. If the requirements are incomplete and cannot be clarified with consultants, assumptions are used to proceed.

Thorough analyses provide a detailed understanding of competitor products, complexity cost drivers, costs of functions, technology trends, and much more. In the process, solutions for the product to be developed are sometimes served on a silver platter.

Creativity develops from the working method of an interdisciplinary team and, above all, from new information derived from important analysis results.

This is How a Design-to-Cost Project Succeeds

The following describes a DTC project as an example to illustrate a possible process.

The DTC project starts with a five-day workshop. The objectives were defined with the client in advance. The product is new; there is no predecessor product. Approximately 80 percent of the requirements are available. The company and the involved employees have no prior experience with DTC methods.

A team of five employees is formed. This includes developers from design, electrical engineering, and software, as well as a cost manager. The team is moderated by a consulting firm.

After introducing the systematics and methodology, the process is as follows:

• The team develops a shared understanding of the objectives
• The requirements are reviewed and partially supplemented with assumptions
• A functional analysis with approximately 40 functions is conducted
• Solution ideas for fulfilling functions are sought
• Solution ideas are checked for feasibility
• Solution ideas are technically developed and evaluated with manufacturing costs, development effort, investments, etc.
• A morphological matrix with the evaluated solution ideas is created
• Four solution concepts with different manufacturing costs and development efforts are defined, evaluated, and compared
• This is followed by the final presentation with the client and the decision for a solution concept
• Subsequently, further DTC development work begins with the step-by-step technical elaboration of the selected solution concept

With regular meeting techniques or small workshops, it would have taken several months to achieve even a roughly comparable result.

Summary: What Design to Cost is and What it Delivers

• Design to Cost (DtC) is an umbrella term for a variety of different methods and techniques.
• The combined application of multiple methods yields significantly higher cost reductions than relying on a single approach.
• Clear objectives, creativity, and strong analytical skills are the critical success factors.
• Potential cost reductions range between 15 and 60 percent.

*Hermann Schlichting, Management Consultant and Managing Director at Schlichting Consulting