The division that approached us produces radiators, the heart of the engine cooling systems for thermal and electric machines. The product, in all its variants, was progressively losing market share despite its good performance and the quality of the original design. The company’s efforts to customize and adapt the product to the diverse needs of specific customers proved ineffective. It was necessary to understand why demand was decreasing and how to manage the costs of technical innovations made to enhance competitiveness, which were eroding profit margins.
Understanding the Customer’s Needs to Align Demand with Supply
When a product is uncompetitive, work typically focuses on two aspects:
- The costs incurred in its production.
- The value provided by its features.
These are valid considerations, yet they occur at a subsequent, ex post level, after the product has already been defined.
There’s already a developed idea transformed into a bill of materials that initiates a series of steps for its realization: analyses that work to optimize only what already exists.
What if we worked at an earlier stage, ex ante to its design, considering a much broader range of possibilities?
This is the solution we proposed, a dual analysis conducted a step before the product is created, through design to value (DTV) and design to cost (DTC).
With design to value, we examine aspects, functions, and elements that are truly important to the customer and expected from the product. Meanwhile, design to cost sets the target cost for the product, achieving the ideal balance: for the customer between the value offered and the price charged, and for the manufacturer between resources expended and revenues gained.
The benefits of this approach enable an organization to make customer-oriented decisions based on real data regarding innovation, change, process, and product.
We will discuss how these methodologies work and why they are strategic for a company’s competitiveness in a dedicated article on design to cost and design to value.
Here, we will focus on the organizational aspects that led to the success of this initiative.
Control Costs without Sacrificing Profit Margins
The strong and stable link between product or service design and market needs is the secret to competitiveness.
The first step was a detailed analysis of the needs of customers who purchase this specific type of cooling radiators, involving the company’s sales department.
The ability to be competitive is closely linked to the match between customer needs and the manufacturer’s response.
Although this equivalence seems intuitive, it frequently occurs that the product developed and launched on the market, for various internal reasons, does not align with the customer’s desires.
This may happen because valuable information gathered by the sales department is lost during the design phase, or because, in an attempt to improve the product, features are added that increase expenses but are not needed or desired by the customer. These “mistakes” are precisely what the design to value methodology or value analysis aims to prevent and avoid.
Value Analysis: The Perfect Match
The face-to-face meeting between design technicians and sales staff is crucial for gathering key information and ideas for product development, avoiding the dispersion that can occur through emails or a bill of materials.
In most organizations, these two areas speak different languages and have a partial perception of reality and problems because they are focused on their areas of expertise. Things are somewhat better in companies highly focused on technology, as sales require technical skills; however, misunderstandings and imbalances between what the customer has requested or expects and what they receive can still occur.
The external consultant not only helps the company adopt the most effective methodologies for achieving results, like DTV and DTC, but also plays a crucial role as a balancer, mediator, and guarantor, precisely because they are external, neutral, and unlinked from established internal dynamics.
The exchange between areas allows the technical department to gather the essential and appreciated characteristics from the customer and ask for clarifications before starting the design. Some technical solutions, if presented first to those directly involved in sales, can be improved or entirely set aside in light of market needs, allowing significant savings in hours and costs.
With the data and information collected, a matrix is created whose result is a list of functions according to their priority and importance.
The matrix has the great advantage of providing a clear order shared by all, dispelling misunderstandings and partial viewpoints. Based on its results, we then proceed with the design to cost.
Design to Cost: The Strategy for Defining Costs
Now it’s time to bring in two other important players: production and purchasing.
Here again, appropriate mediation and knowledge transfer must occur at the right technical level. Everyone must step out of their comfort zones to listen to the other viewpoint, minimizing biases and personal opinions.
To identify areas where it is possible and advisable to intervene, every single function of the matrix must be analyzed, breaking it down into a series of subassemblies that realize it. For example, for the “cooling” function, both the individual production phases and the components that made this function effective were identified as subassemblies.
For each element of the subassembly, its value and cost must be determined, and then the overall cost of the function reconstructed.
If function XY is the main one, it means that all the components and processes that contribute to its realization and response are priorities over others, and investment can be focused on these items. Similarly, the product functions that the customer perceives as non-primary must be addressed at lower costs. For these, solutions that respect costs and timelines are often true innovations, such as unique packaging that solves many shipping difficulties or a technological solution that saves time in product realization.
The company must develop functions that the customer is willing to pay for. The customer expects certain precise things from your product, and those must be absolutely delivered. Then, you can also consider the rest, offered as extras or enhancements.
At the end of this phase, interesting discoveries are often made. The application of the DTC methodology can lead, for example, to a list of costs for which some processes and components considered important and valuable are actually not at all, or are very costly, and the customer is not willing to pay for them. Thus, a different path must be found, requiring innovation.
In analyses related to design to cost, the entire lifecycle of the product is considered, not just the manufacturing and the related bill of materials for its realization. This is why it is a method that facilitates innovation, because it opens the view to all individual aspects of a product, from its conception to its delivery to the customer.
In the case study, it was understood that the radiator was indeed very high-performing but too heavy for the customer’s needs, and some functions important for its efficiency were raising its cost too much. Therefore, a different system needed to be devised to guarantee them but at lower costs.
The perfect Match Leads to Competitive Advantage
Thanks to the application of the value analysis methodology combined with the design to cost, it was possible to achieve:
- optimize the product cost during the design, according to the value perceived by the market
- identify the best technologies to ensure the manufacturability
- simplify the product by eliminating unnecessary frills available, which has laid the foundation for the simplification and rationalization of after-sales and assistance activities
- again thanks to simplification, increase reliability
Professionalism exists (and persists) in the market when there is someone willing to pay for it. The same applies to a company, its products, and its services. That’s why the analysis of value and costs is strategic for its competitiveness.
Roberto Malaguti – Partner at ŌdeXa
