Executive Briefings

Purchasing, Suppliers Are important Players in Keeping Product-Design Costs Down

Purchasing staff at Whirlpool recently joined with colleagues in the company's marketing, sales, engineering, global design, production and quality control departments in a pilot project to find a way to close the gap between the target cost for an aesthetics module on one product and the designed cost. The gap was 30 percent. The team put together a cost model, identified the cost drivers of the subassemblies causing the gap and agreed on an alternative design that would get them to the target cost. Result: a better chance of hitting the profit target.  Welcome to the world of target costing, the process of tweaking designs at the earliest stages of product development so that the final development cost will be low enough to allow manufacturers to hit their profit goals while charging a price that the market will bear. Purchasing has a critical role in the efforts, as do suppliers.

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Purchasing staff at Whirlpool recently joined with colleagues in the company's marketing, sales, engineering, global design, production and quality control departments in a pilot project to find a way to close the gap between the target cost for an aesthetics module on one product and the designed cost. The gap was 30 percent. The team put together a cost model, identified the cost drivers of the subassemblies causing the gap and agreed on an alternative design that would get them to the target cost. Result: a better chance of hitting the profit target.  Welcome to the world of target costing, the process of tweaking designs at the earliest stages of product development so that the final development cost will be low enough to allow manufacturers to hit their profit goals while charging a price that the market will bear. Purchasing has a critical role in the efforts, as do suppliers.

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