Sunday, October 12, 2008

Overcoming Market Challenges - A Design Approach

Recessionary trends in markets always force customers to re-think before spending and postpone high-value investment decisions. In these days of wild economic oscillations, every company involved in manufacturing and marketing of products is faced with the following scenarios:

  1. Reduced Orders for Products
  2. Shrinking profit margin
  3. Competitive pricing from predatory products

Add to these challenges, the burdening effects of increased input raw material costs, extended product development time and costly re-work due to failures, we have a problem of monstrous proportions that affects the company bottom-line and survivability.

In order to stay competitive, increase market-share and provide more value for less money, product development companies need to do three things:

1. Innovate
2. Improvise
3. Implement

It is well known that 80%-85% of a product cost is driven/ decided by Design. Input raw-material, number and sequence manufacturing operations, product testing, product/ design re-work, field failure correction, enhancing product performance, improving efficiency all have their main input from Design. No time is better time than NOW to revisit our Designs and see how we can address Critical Business Issues.

Cost Reduction Exercise should be done in a conscious and time-bound manner to have any effect. Simple steps, when followed with due diligence, can turn around companies towards higher growth path and profitability. History is replete with testimonies to this cause. 'Jelly-bean' type rounded shape of Ford Taurus increased sales and profitability for Ford Motor Company in the mid-eighties on account of the three 'I's mentioned above.

Step I: Set Goals

Goal setting is an important process that determines the success rate of the exercise. Such goals should have clear alignment with Critical Business Issues facing the company. For example, let us say, a Company ABC that has had a successful run with one of their mainstream products is facing competition from an overseas Company in terms of price. The Goal could be:

Increase Overall Profit margin by 5% while addressing the following:
  1. Reduce finished product cost by 10%
  2. Integrate new features that lowers overall cost of ownership to end-consumer by 10%
  3. Implement within 1 month
Goal Setting in terms of tangible benefits within specified time-line helps in more ways than one: Events Force Action

Step II: Design Action Plan

Design Team, identified to achieve stated goals, then needs to work on a definitive Action Plan with an accepted mission statement: 'Failure is not an Option'

Steps involved in the Action Plan could have following indicators:
  • Reduce Number of Parts going into an Assembly (by integration, elimination or augmenting product functions)
  • Reduce Manufacturing Operations required to produce a part (by simplifying geometry)
  • Reducing number of serviceable parts (thereby reducing service parts inventory)
  • Revisit Bill of Materials to standardize on parts (replace parts with Standard Catalog parts where permitted)
  • Reduce fasteners and/ or standard parts to minimum required quantities
  • Minimize product configurations to achieve modular variants
  • Evaluate Power-to-Weight Ratio for optimal utilization
  • Check tolerances of parts going into assemblies and perform tolerance stack-up calculations to reduce/ eliminate rejections at part/ assembly levels
  • Validate Designs for Fit, Form and Functional aspects with emphasis on least cost
  • Ask Questions such as: Why, Why-not, How, When and What for every design feature that adds to overall cost

Step III: Perform Fit, Form and Functional Validation

Revisiting every design to have a better understanding, in terms of cost is bound to be a profitable exercise. However, for proven products, the inertia to change or the fear of 'tinkering' with a working design over-powers the incentive to adopt new technologies and processes that result in a final product having the least cost and best functionality in its range. This 'fear' or 'reluctance' can be avoided or confronted ( based on the company's approach) by Validating every aspect of Design in terms of their Fit, Form and Function. This provides a basis for the engineering evolution of the product and helps revisit equations in a changed economic scenario.

Step IV: Implement

By adhering to the action plan that helps reach goals within stipulated time frame, cost reduction end benefits are assured. The will to implement after overcoming the fear of change has to be a pre-requisite to the conduct of this exercise. By re-visiting the goals and seeing how close or how far the benefits are, it helps set clear targets for further re-assessments that help build a competitive product.

None of the above would help succeed without the Team taking the ownership for the success or the not-so-successful exercise of competitive product development.

In bleak market scenarios, this exercise provides more benefits even to other areas of an Enterprise:

  1. Redefining Value and Enhancing Customer Satisfaction
  2. Confidence in Product Performance and Augmented USP
  3. Pride of Ownership for a Superior Product

All the above go a long way in instilling a higher level of resolve to face competition, enhance value and reduce the overall cost of ownership for Customers and Prospects alike.

Notwithstanding other exercises, Design Re-validation is a Necessity that protects the bottom line while ensuring higher profitability for Product Development companies.

1 comment:

Mark said...

Enjoyed your article. You talk about reducing the amount of servicable parts thereby reducing service parts inventories. That is a very powerful strategy but one that is often not appreciated in the grand plan. The true cost of stocking service parts can be a real drain on profits. The carrying costs of inventory can be substantial.

My company, Baxter Planning Systems, is completely dedicated to optimizing inventory and service level for service part planning. Any manufacturer who supports their product, especially through high-availability service contacts, needs to have planning tools to dynamically balance inventory and service level.

Mark Anderson
VP, Baxter Planning Systems