Many companies pursuing lean transformation and continuous improvement are focusing on the customer fulfillment operations to improve quality and delivery while reducing costs. Organizations are working to reduce lead time, improve quality, and make their manufacturing and distribution operations more efficient in an effort to cut costs. While these improvements are important, they are not sufficient in today's globally competitive manufacturing world.
In many companies today, direct labor is a single-digit percentage of the cost of goods sold (COGS), with purchased materials and overhead burden making up over 90% of their COGS. Even with these cost breakdowns, many continuous improvement efforts still focus on trying to eliminate waste in the manufacturing process to use labor more efficiently to reduce labor content. These efforts will produce some small incremental improvements in the COGS, but a much better opportunity exists early in the new product design cycle.
It is estimated by some product development experts that 80% of the final cost of a new product is determined in the first 20% of the design cycle where the product concept and initial design philosophy are chosen. If you involve your manufacturing organization and your suppliers at these very early stages of the cycle and form a concurrent engineering design team, you have the opportunity to design products for manufacturing and assembly, both at your suppliers and in your own operations as well as using their expertise in your designs. Using such design-for-manufacturing techniques as reduced parts count, substitution of molded plastics or pressed and sintered powdered metal parts for machined metal and poka-yoke designs to eliminate assembly errors, your new products can be developed with a radically lower final cost of goods sold.
People from your manufacturing operations are a great resource to use with your product design teams to offer suggestions on how designs can be manufactured and how costs can be reduced by making products easier to assemble, with less chance for quality issues and their resultant scrap and rework costs. Manufacturing engineers can plan how to produce a new product while it's still in design when options for processing methods and equipment are still available. Operators can evaluate their ability to assemble new products and can offer suggestions on visibility and accessibility of components before designs are frozen.
Manufacturing personnel who are familiar with existing products can suggest part substitutions to increase commonality of parts rather than having all unique components. A unique fastener that is out of stock will shut down a product operation just as surely as a custom casting or machined component, but common fasteners can often be designed in from the start.
Your suppliers, working with your product development teams, can suggest design alternatives that often reduce a product's material cost by up to 50%. Rather than just giving them a component specification to quote, use their expertise to suggest alternate materials, design options, different fabrication techniques, and tolerances that really matter to reduce your product's component costs. Too often, suppliers are not trusted and not involved until the design is complete and your organization has lost the opportunity to exploit the supplier's expertise to minimize component costs by being involved with the design team from the very beginning.
There are a number of organizations utilizing concurrent engineering design teams today to incorporate the knowledge and unique experience of suppliers, manufacturing engineers, quality professionals, production and distribution personnel, accounting/finance folks and marketing/sales people to bring increased knowledge and expertise to the team to get better designs at a lower product cost. These teams are part of the design process from the very beginning, at the ideation phase, to develop new products that are better quality and lower cost than those designed exclusively behind the curtain of new-product engineering. Don't forget to involve your suppliers and operations organization in your new product-development process at the very start. You'll be glad you did.
Ralph Keller is president of the Association for Manufacturing Excellence, an organization dedicated to cultivating understanding, analysis and exchange of productivity methods and their successful application in the pursuit of excellence. He has been an operations practitioner for the past 35 years.