1. CONFIDENTIAL
26.10.2012
Slide 2
COST REDUCTION: INSPIRING &
EFFICIENT APPROACHES
CONFIDENTIAL
Ann Van Mele
Business Development key accounts
Ann.vanmele@verhaert.com

2. CONFIDENTIAL
26.10.2012
Slide 3
Cost Reduction
Agenda
• Introduction
• Drivers?
• Where?
• Cost reduction program
• Cost Planning
• What?
• Why?
• How?
• Cost estimation Top-down
• Cost estimation Bottom-up
• Cost Reduction Approaches
• Value Eng.
• Portfolio rationalisation
• DUE
• Design for manufacuring
• Conclusion

3. Slide 4
26.10.2012
CONFIDENTIAL
Introduction - Drivers
• Globalisation
• Low-cost country production
• More important for mature products
• Increased product changes - Product differentiation

4. Slide 5
26.10.2012
CONFIDENTIAL
Introduction – Where?
Number of uncertanties
Intended level
of learning Cost of
changes
Uncontrolled
learning
Progress in development
NPINPDFront end
Fundamental cost
reduction
Why most corporate
actions lead to marginal
cost reduction?

5. Slide 6
26.10.2012
CONFIDENTIAL
Introduction – Where?
Product cost

6. Slide 7
26.10.2012
CONFIDENTIAL
3 fold engagement
Perfor-
mance
Planning
Risk
manage
ment
Price
Introduction - Cost Reduction Program

7. Slide 8
26.10.2012
CONFIDENTIAL
Introduction - Cost Reduction Program
Detailed concepts
Product concept
System concept
Strategic architecture
Costplanning
Requirement setting
Benchmarking
Re- engineering
Strategic architecture
System concept
Product concept
Detailed concepts
Costplanning
Requirement setting
Benchmarking
New Product

8. Slide 9
26.10.2012
CONFIDENTIAL
Cost Reduction Program
Strategy
Positioning
Tactical
Architecture & system
Operational
Detailed concepts
Business
Technical
Value
Eng.
Discount Usability Eng.
Portfolio Rationalisation
Design for manufacturing

9. Slide 10
26.10.2012
CONFIDENTIAL
Cost Planning

10. Slide 11
26.10.2012
CONFIDENTIAL
Cost Planning - What?
“You can’t manage what you don’t measure”
Ed. Deming

11. Slide 12
26.10.2012
CONFIDENTIAL
Cost Planning - Why?
• By the end of the concept phase 60% of total cost is fixed
• To know the cost drivers
• To set the right priorities
• Highest freedom to find alternatives
• Quantify the consequences of design decisions

12. Slide 13
26.10.2012
CONFIDENTIAL
Cost Estimation - Top Down
Target Costing
• From the market (set objective)
• Market research
• Margin structure
• Competition
• Translate to technical cost price
• Monitor the target cost during the development trajectory

13. Slide 14
26.10.2012
CONFIDENTIAL
Cost Estimation – Bottom up

14. Slide 15
26.10.2012
CONFIDENTIAL
Design
freedom
Cost Estimation – Bottom up
Need to estimate the product cost in an early stage
knowledge
Development cycle
No data available

15. Slide 16
26.10.2012
CONFIDENTIAL
Cost Estimation – How?
Function tree
• E.g. Design Function Deployment
• Excel sheet

16. Slide 17
26.10.2012
CONFIDENTIAL
Cost Estimation – How?
• Generative method (production process & material)
• Estimate amount of material & manufacture time
• Parametrical method (simulation models)
• Relations between different design parameters- related costs
• Data verification of previous development processes
• Variant based method
• Find similarity between new and existing product
• Hybrid method (combination)
• Standard components (generative, variant-based)
• Innovative components (parametric)
• …

17. Slide 18
26.10.2012
CONFIDENTIAL
Cost Planning - What?
“You can’t manage what you don’t measure”
Ed. Deming

18. Slide 19
26.10.2012
CONFIDENTIAL
Cost reduction in the development process
Approaches

19. Slide 20
26.10.2012
CONFIDENTIAL
Design for manufacturing
Cost Reduction Program
Strategy
Positioning
Tactical
Architecture & system
Operational
Detailed concepts
Business
Technical
Value
Eng.
Discount Usability Eng.
Portfolio Rationalisation

20. Slide 21
26.10.2012
CONFIDENTIAL
1 .Value Engineering
Cost Reduction by evaluation function/user value
• Function analysis
• Functionality & Physical process
• Function/value for user
• Creative phase
• Idea generation- alternatives
• Evaluation phase structured evaluation process
• Cost price verification process
• Development phase (concept)
• New-value proposition

21. Slide 22
26.10.2012
CONFIDENTIAL
Cost Reduction Program
Strategy
Positioning
Tactical
Architecture & system
Operational
Detailed concepts
Business
Technical
Value
Eng.
Discount Usability Eng.
Portfolio Rationalisation
Design for manufacturing

22. Slide 23
26.10.2012
CONFIDENTIAL
2. Portfolio Rationalisation
What?
• Contribution analysis
• Segmentation
• Feature rationalizing
• Cost reducing architectures
Platform integration Modular design (plug & play)

23. Slide 24
26.10.2012
CONFIDENTIAL
Cost Reduction Program
Strategy
Positioning
Tactical
Architecture & system
Operational
Detailed concepts
Business
Technical
Value
Eng.
Discount Usability Eng.
Portfolio Rationalisation
Design for manufacturing

24. Slide 25
26.10.2012
CONFIDENTIAL
3. Discount Usability Engineering (DUE)
Cost Reduction by Disruptive concepts
• Identifying over served market segments
• Product stripping
Disruptive technologies evaluation
• Technology scouting
• Technology evaluation
• Preliminary system concepts
Performance
incremental
incremental
Just good enough
Competition to non consumption
incremental
Source: Based on Christensen

25. Slide 26
26.10.2012
CONFIDENTIAL
Cost Reduction Program
Strategy
Positioning
Tactical
Architecture & system
Operational
Detailed concepts
Business
Technical
Value
Eng.
Discount Usability Eng.
Portfolio Rationalisation
Design for manufacturing

26. Slide 27
26.10.2012
CONFIDENTIAL
4. Design for Manufacturing
Economy of scale:
• Smart definition of modular architectures can have a huge impact on
the economy of scale on component level.
• Working with standardized components can reduce your
development cost , and will increase your time to market.
Material type
• Choose material which is easy to fabricate
• Manufacturing techniques
Material form
• Size and shape of component determines the form & cost (bar,
plate)
Material volume
• Material reduction by (FEM modelling,..)

27. Slide 28
26.10.2012
CONFIDENTIAL
4. Design for Manufacturing
Tolerances
• Geometric tolerances (tighter more expensive)
• Capacity tolerances (e.g. battery, processing unit,…)
Design & shape
The shape and volume of your component will determine the machine time
• Time to install & remove material
• Tooling
• Shape (radii or chamfers,…)
Design for Maintenance
• Life cycle
• Accessability
• Corrective/preventive

28. Slide 29
26.10.2012
CONFIDENTIAL
Design for Assembly
• Reduction of parts e.g. dual use major cost benefit
• Provide features to easy grap, insert, move, orient
• In-mold assembly
• Reduce complexity
Design for Testing
• Sub-assemblies testing
• Add certain testability features
Sourcing
• Evaluate Suppliers
• Evaluate outsourcing of production
• Second sourcing
4. Design for Manufacturing

29. Slide 30
26.10.2012
CONFIDENTIAL
Conclusion - Cost Reduction Program
• User centered – Value driven
• fundamental cost reduction in the beginning of the process
•Cost planning
• Be aware of the insidious character of cost drivers

30. Slide 31
26.10.2012
CONFIDENTIAL
VERHAERT MASTERS IN INNOVATION®
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tel +32 (0)3 250 19 00
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VERHAERT MASTERS IN INNOVATION®
Netherlands
European Space Innovation Centre
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Tel: +31 (0)633 666 828
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More at www.verhaert.com
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