GUEST POST from Mike Shipulski
With inflation on the rise and sales on the decline, the time to reduce costs is now.
But before you can design out the cost you’ve got to know where it is. And the best way to do that is to create a Pareto chart that defines product cost for each subassembly, with the highest cost subassemblies on the left and the lowest cost on the right. Here’s a pro tip – Ignore the subassemblies on the right.
Use your costed Bill of Materials (BOMs) to create the Paretos. You’ll be told that the BOMs are wrong (and they are), but they are right enough to learn where the cost is.
For each of the highest-cost subassemblies, create a lower-level Pareto chat that sorts the cost of each piece-part from highest to lowest. The pro tip applies here, too – Ignore the parts on the right.
Because the design community designed in the cost, they are the ones who must design it out. And to help them prioritize the work, they should be the ones who create the Pareto charts from the BOMs. They won’t like this idea, but tell them they are the only ones who can secure the company’s future profits and buy them lots of pizza.
And when someone demands you reduce labor costs, don’t fall for it. Labor cost is about 5% of the product cost, so reducing it by half doesn’t get you much. Instead, make a Pareto chart of part count by subassembly. Focus the design effort on reducing the part count of subassemblies on the left. Pro tip – Ignore the subassemblies on the right. The labor time to assemble parts that you design out is zero, so when demand returns, you’ll be able to pump out more products without growing the footprint of the factory. But, more importantly, the cost of the parts you design out is also zero. Designing out the parts is the best way to reduce product costs.
Pro tip – Set a cost reduction goal of 35%. And when they complain, increase it to 40%.
In parallel to the design work to reduce part count and costs, design the test fixtures and test protocols you’ll use to make sure the new, lower-cost design outperforms the existing design. Certainly, with fewer parts, the new one will be more reliable. Pro tip – As soon as you can, test the existing design using the new protocols because the only way to know if the new one is better is to measure it against the test results of the old one.
And here’s the last pro tip – Start now.
Image credit — aisletwentytwo
Sign up here to get Human-Centered Change & Innovation Weekly delivered to your inbox every week.