5 Techniques for Designing Products for Strong Margins

Time to Refresh

Dec 22 2016 - 12:39pm

IDSA Ambassador Teknor Apex is sharing its INsights into product design. Now, you can benefit from the expertise of one of the world's leading, custom compounders of plastics that has a 90-plus year history.

Every decision—from ideation to design and engineering to manufacture—has an impact on overall profitability, but it can be hard to anticipate how a cost compromise in one area could have unintended consequences—and pinch margins even tighter. For your next product refresh, consider each of the following proven techniques to optimize the total landed cost. (These techniques work equally well for brand new product introductions, too.)

1. Reduce the cost of existing components. This is the fastest, least disruptive path to cost reduction. Figure out what you should be paying for each component by comparing it to similar parts, using cost estimating tools or contacting alternative vendors. Use this target cost to negotiate with existing vendors. A common approach is to partner with vendors who offer savings incentives or rebate programs based on volume. Higher volume=lower prices, so try to use the same part across multiple product lines when possible.

2. Substitute individual components of the product and cut or avoid direct costs. There are three slightly different approaches to component substitution:

  • First, for common industry parts, there will be multiple manufacturers, and it is likely that a lower cost version of the part exists. In this approach, you substitute an existing part with a similar one. Many times during the original design process, assumptions are made and design requirements are more stringent to minimize risk. Because of this many parts are over-engineered resulting in higher costs.
  • The second approach to component substitution is to use a lower performing or lower quality part that still meets the specifications and design requirements.
  • Finally, on occasion, there are instances where a more expensive part makes more long-term economic sense. For example, a co-molded seal replaces two separate parts with one, eliminating handling and assembly costs.

3. Be strategic when choosing where to manufacture:

  • Think about lead times, interruptions in the supply chain, or stock outages. How critical is that part to your product and what costs would be incurred if a shipment was late or didn’t arrive at all?
  • The majority of consumer product companies outsource many, if not all, of their manufacturing. Be sure to understand the capabilities of your contract manufacturer or molder. They are constantly improving their capabilities and implementing value-add services to improve efficiencies and lower costs, so take advantage of that.

4. Redesign to reduce the number of parts, simplify the assembly or use lower-cost parts. Convene a cross-functional team with representatives from design, engineering, purchasing, materials and quality control, and use a formal process to evaluate the product:

  • First, isolate the individual components of the product. Identify the function of each component.
  • Brainstorm new solutions to satisfy each function.
  • Then, evaluate the proposed changes by determining the total cost and benefits of each.

5. De-feature products and offer only the options that customers truly value. Pre-market surveys almost always reveal that consumers want every possible feature—yet they don’t want to pay a penny more for it. In time, conditions and preferences change, and you may find that what once was a “must-have” is not even utilized by a majority of users. Look at your sales history:

  • What features or options are selling and which aren’t?
  • Can these lesser-valued features be converted from product attributes into product options that can be offered as an upgrade for an additional charge?
  • Or, can the option be dropped altogether?