Executive Briefings

Are You Sure You're Measuring the Really Important Stuff?

When we look at the cost structure for most businesses today, does it make sense to focus so much of our energy on trying to reduce a cost that constitutes such a small percentage of our cost of goods sold (COGS)? It has been estimated that 80 percent of the cost of a product is determined in the first 30 percent of the product development cycle, but how many organizations have their suppliers working with their product development engineers at these early stages of design to incorporate the suppliers' input to reduce product costs? Those companies that do involve their suppliers early in the development process estimate that their product costs are reduced by 30 percent or more compared with their old, independently designed products, just by involving suppliers and listening to their inputs on design ideas that make it less costly to produce the components.

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When we look at the cost structure for most businesses today, does it make sense to focus so much of our energy on trying to reduce a cost that constitutes such a small percentage of our cost of goods sold (COGS)? It has been estimated that 80 percent of the cost of a product is determined in the first 30 percent of the product development cycle, but how many organizations have their suppliers working with their product development engineers at these early stages of design to incorporate the suppliers' input to reduce product costs? Those companies that do involve their suppliers early in the development process estimate that their product costs are reduced by 30 percent or more compared with their old, independently designed products, just by involving suppliers and listening to their inputs on design ideas that make it less costly to produce the components.

Read Full Article