What is “DESIGN TO COST (DTC)” ?
Index
“Design to Cost” consists of a systematic approach in controlling the costs of products, from its design to its big day of release on the market. It involves first to analyse and then to optimize all costs of this product in relation to the expectation of the customer in terms of functionality and quality.
The whole idea of “Design to cost” has proven to be highly effective because the design engineer can influence up to 70% of a product’s final cost and thus can achieve a more precise cost estimation of the finished product.
Design to Cost (DTC) processes allow the design team to manage any kind of project based on the costs of each of its phases and the consisting elements, by applying a number of methodologies, techniques, models and tools.
Manufacturers always have to have the costs of a product in mind as it decides if a product will create profit or loss for the company. But traditionally, only thought is generally happened after the product leaves the design stage.
Designers don’t necessarily focus on how economically the product can be produces, design engineers usually focus on performance, function, appearance, and reliability. They all take strong precedence over cost when making design decisions.
Benefits of “Design to cost “
The key benefits of using this strategy derives from cost reduction already at the initial stage of the design. Designers have to think in a new, economic dimension to be able to produce as product cost-effective while still maintaining its supreme quality.
For the company owner and manufacturer cost reduction is an ever-present goal, achieving lower costs while retaining the desired functionality means higher profit margins, more market shares, and happy customers.
Difference between Design to value and design to cost
There are two different aspects in designing products which are worth looking at:
Design to value – Conditions and designs that strive to increase value of the product to the customer. Its purpose is to compete on the quality of the product.
Design to cost – Conditions and designs that strive to attain the target cost of the product. Its purpose is to compete on the price.
Total cost of Ownership, how is it calculated?
Total cost of ownership is an estimate of all direct, indirect as well as any hidden costs associated with acquiring and operating a product throughout its lifetime. In simple terms, it is the total capital cost assigned to an asset from the purchasing, planning and even up to its disposal.
There’s a saying about sailors and their sailboats:
“The only good times are when you buy a boat and when you sell it” which indicates the ownership itself is enjoyable, but may still have some drawbacks and always risks involved.
Calculating all potential costs may include not only the initial price, but its operation, downtime, maintenance, output and lifetime. Factors which are not always easy to estimate.
In order to calculate total cost of Ownership, add the initial purchase value with all hidden costs and find the difference with the possible resale value.
TCO = Acquisition cost + Service costs {Operation costs/Maintenance costs/logistical costs} +/- Resale value
Total Value of Ownership
Total value of ownership focuses on maximizing operational efficiency, beyond direct and indirect instrument costs.
What are the benefits of Total value of Ownership?
– It definitely saves a company a lot of time
– and saves spaces as well
– while the workflow is optimized
– and the Key Performance Indicators (KPIs) are highly improved
Total value of ownership (TVO) and total cost of ownership (TCO) are commonly used in industries to evaluate operational performance of a company. TVO helps to uncover the true value of any chosen asset, helping it to stay viable in the phase of rising costs budget cuts and pressures to deliver more value to the asset’s overall ecosystem.
TVO considers the additional benefits of an investment or process and not just cost alone. Furthermore, TVO is about determining which decision will drive the greatest value, both from a monetary perspective as well as from the view of the desired outcome.
TVO is one of the method used to help customers improve their ability to provide greater value to the customers and community.
Value creation
The primary purpose of every business is to maximize profit. However, to do this without creating value is a step in the wrong direction. Value creation is an essential base to support a profitable and lasting business.
Value creation is the increase in value from transforming raw inputs to the final output. You can think of value creation as the extra benefit that is derived from the transformation of raw inputs to final products. As you transform the products, the customer’s willingness to pay for the goods increase. The greater the customer’s willingness to pay, the greater the value that has been created.
Value creation for customers helps to sell products and services, creating value for employees results in higher efficiency and creating value for shareholders translates into increase in stock price, future guarantee of investment capital.
What is Value Analysis?
Value analysis is a technique used to increase the value of a product by improving its functions and reducing unwanted costs without compromising in its quality and performance. This technique is useful in businesses to avoid unwanted costs and to improve the quality of the products, especially on highly competitive markets where constant new upgrades are a must to remain in the game.
It is an approach which ensures necessary functions for the minimum cost without diminishing quality, appearance and performance. Value analysis provides a structure for cost saving advantage, less risk and continuous improvement.
How Does Value Analysis work?
The key focus of the VA approach is therefore the management of ‘functionality’ to yield value for the customer.
If a company seeks to reduce the costs of producing a product, then it must find out all costs down to that cent which are unnecessary or identify parts or components of the product that provide no functional value to the customer.
Functional Analysis
Functional analysis is applied during the development stage of a new product, but it uses the functions of a product (or service) as the basis for cost management.
The next stage of the Value Analysis is to start the analysis of the product by identifying systematically the most important functions of a product or service. This is known as functional analysis.
‘Function’ can be defined, as the use demanded of a part of a product and the esteem value that it provides. These functions therefore make the product work effectively or contribute to the ‘saleability’ of the product.
Difference between value analysis and functional analysis
Value analysis is cost avoidance or cost reduction of a product already in production. It aims to reduce the overall cost of the product by changing its materials or composition in a way that does not affect the quality or ‘value’ of the product.
Functional analysis is similar to value engineering because it is done at the product’s development stage while it is being designed. It is concerned with reducing costs by removing or changing features of the product in a cost-effective manner.
