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Cost Optimization Design to Cost – What It Is and How It Works

By Hermann Schlichting* | Übersetzt von KI 4 min Reading Time

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

In new product ideas, costs play a decisive role. With design-to-cost methods, it is possible to precisely plan how costs can best be saved.(Image: public domain / Pixabay)
In new product ideas, costs play a decisive role. With design-to-cost methods, it is possible to precisely plan how costs can best be saved.
(Image: public domain / Pixabay)

Product development is increasingly under pressure to develop cost-effective products. With previously common approaches, higher costs than planned often arise at the start of series production. However, in this phase, it is too late to save costs without costly design changes. Design-to-cost methods used in advance can provide a remedy.

Design to Cost – What Is It?

The term Design to Cost (DTC for short) is used inflationarily today, and often, one finds no comprehensible description in research. 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 uniformly described. The use of the right methods in a design-to-cost project generally depends on the goals, which can vary greatly. Possible goals 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 goals 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 from one another.

Possible DTC methods include:

  • Target Costing: Systematically determining the target costs for the product and its components

  • Reverse Engineering: Reverse engineering provides detailed information about cost differences compared to competing products

  • Experience Curve Analysis: The analysis shows potential cost reduction opportunities and the cost gap to the competitor

  • Quality Function Deployment: This focuses on customer requirements and competitive comparisons. Over-engineering is to be avoided here.

  • Value Analysis: By analyzing functions and function costs in an interdisciplinary team, new solutions with significant cost reductions are developed.

Cost reductions through Design to Cost by up to 60 percent

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

Applied techniques for optimizing development projects include:

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 may then differ to some extent.

Due to the ongoing intensification of competition, it is no longer sufficient today to use only one method, such as value analysis. Although this always achieves a cost reduction, further cost reduction potentials remain unrecognized.

Therefore, it is essential, oriented towards the client's goals, 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 specialists, then work continues with assumptions.

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

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

How to Successfully Execute a Design-to-Cost Project

An example of a DTC project is described below to illustrate a possible process.

The DTC project starts with a five-day workshop. The goals 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 previous 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 presenting the systematics and methodology, the process follows:

  • The team develops a common understanding of the goals

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  • The requirements are reviewed and partially supplemented with assumptions

  • A functional analysis with approximately 40 functions is carried out

  • Solution ideas for fulfilling functions are sought

  • Solution ideas are checked for feasibility

  • Solution ideas are technically developed and evaluated in terms of 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 a decision for a solution concept

  • Subsequently, further DTC development work begins with the step-by-step technical elaboration of the selected solution concept

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

Summary: What Design to Cost Is and What It Brings

  • Design to Cost is an umbrella term for various methods and techniques.

  • The combined application of various methods leads to greater cost reductions than using just one method.

  • Goals, creativity, and analytical ability are the critical success factors.

  • The possible cost reductions range between 15 and 60 percent.

*Hermann Schlichting, management consultant and managing director at Schlichting-Consulting

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