Dec 102012
 

I just read an article on the site “Strategy + Business” called Building Cars by Design.  It caught my eye for two reasons.  First, the fact that a strategy site would deign to talk about engineering concepts was a pleasant surprise.  Second, the article discussed Design-to-Cost and Design-to-Value.

If we strip off the automotive context, the main premises of the article from a Product Cost Management point of view are as follows:

  • Design-to-Cost means designing a car to a specific absolute cost
  • Design-to-Cost is bad because it does not take into account “value”
  • Design-to-Value needs to be used instead of Design-to-Cost, i.e. the product company needs to think about what features that customers value and then deliver these.

I applaud the authors for opening up a discussion on these topics.  However, I feel this article is incomplete and does not tell the whole story about these concepts.  It also doesn’t really say how to do any of these things or point the reader to somewhere he can further learn how.  Here’s my specific suggestions for improvement.

  • Define Design-to-Cost properly, please – Maybe this is just a bit of nomenclature nit-picking, but I have never thought Design-to-Cost means designing a product to a specific cost.   That is what “Targeting Costing” advocates.  Design-to-Cost is about considering cost as a design parameter in your product development activities.  I.E. the design engineer balances cost with other goals (performance, quality, etc.) with the goal of delivering any group of features at the lowest cost possible.
  • Define How to Calculate “Value” to the Customer – The authors say [paraphrasing] that a company should *just* find out what the customers value and then design a product that delivers those things.  I am sure most companies do want to do this, but they don’t know HOW.  I realize that how to calculate value is too complex for the article, but the authors don’t even provide a resource for the reader to learn more.  For example, I studied under Dr. Harry Cook and I am a friend and business colleague of Dr. Luke Wissmann.  At very least, the authors could have pointed the reader to a book on the subject, such as the one Wissmann and Cook wrote:  Value Driven Product Planning and Systems Engineering.
  • What if the Customer Can’t Afford the Value? – It’s difficult to know what the authors mean (even theoretically) by design-to-value.  Regardless, the authors seem to assume that the customer can always afford this value, but I don’t believe this is true, especially in the a second or third world context, which is the focus of the article.

Regarding the last point, I will do my best to illustrate the problem.  Take a look at the figure below in which I graph the value the customer gets from the product versus the price the customer pays for the product.  Presumably, the authors in the article are saying that customers would be willing to pay up to the point that the slope of the value/price decreases substantially (the curve flattens).  But, that assumes the customer has the money to spend – kind of a Field of Dreams Strategy, i.e. “If you build in value, they will pay.”

Product Value versus features and cost Hiller Associates

Click on picture to ENLARGE!

But, what if the customer truly does value a set of features, but he just doesn’t have the funds to purchase all of the value?  In this case, we have to concede that there is a Minimum Viable Product (MVP) needed for the customer to purchase. This term, MVP, is most often used in software development and start-ups.  It is the minimum set of features and functionality that a product must have to have ANY value to the customer.    If you can’t master design-to-cost in your product so that it both includes the MVP features the customer needs  and allows you make adequate profit under the price ceiling of your customer, the product will not be successful.

If the customer has less funds than the MVP to deliver in your product, they can’t afford it.  Similarly, even if the customer has more funds than the MVP requires, but less than when the value/cost curve flattens, you cannot employ a blind strategy of maximizing value to the flattening point of the curve and price near it.  You are still going to have to set your price below your customer’s funds to succeed.

So, are the authors of the article talking about design-to-value to the point that the value/price flattens or to the point where the price ceiling of the customer intersects the curve?

Anyone? Anyone?  Bueller? Bueller? Bueller?

 

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Dec 032012
 
Should your kids go into manufacturing – CNN says... NO.

A couple of weeks ago, AJ Sweat posted his article entitled Guess What, Kids? You Don’t Really Want A Job In Manufacturing, which is AJ’s analysis of CNN’s Best Jobs in America.  His lament is obvious – apparently manufacturing was not considered in this list, or it was, and it just was not desirable.    This Read More!

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Nov 052012
 
New Article by HA in Tech Clarity:  PRODUCT COST MANAGEMENT AS A LINK BETWEEN ENTERPRISE SYSTEMS

  Last week, Hiller Associates published an article in Tech-Clarity with the title: PRODUCT COST MANAGEMENT AS A LINK BETWEEN ENTERPRISE SYSTEMS Here’s an outline of the article: Siemens PLM recently bought Perfect Costing Solutions from Tsetinis & Partner.  What does this mean? To answer this, let’s first ask, what IS Product Cost Management and what Read More!

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Oct 292012
 
Your Should-cost Number is Wrong, But It Doesn’t Matter

Last week Hiller Associates published an article on Should-cost in one of the leading online magazines for manufacturing companies, IndustryWeek.com.   Below is a synopsis  of the article.  However, you may want to just read the article here: Your Should-cost Number is Wrong, But It Doesn’t Matter Should cost is not perfect, but it does not matter, because Read More!

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Sep 112012
 
Siemens buys Perfect Costing Solutions (Tsetinis)

Today is a day of solemn remembrance for Americans and many around the world who remember the 9-11 attack on the the United States of America.  However, there is at least one person who likely quite happy today for a very different reason: Andreas Tsetinis.    Andreas is the Founder and CEO of Perfect Costing Read More!

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Sep 052012
 
This is no time to think about profit! We're doing badly enough already.

Yes, you read the title correctly.  It may sound like an oxymoron, but some form of this statement is uttered every day in the world of Product Cost Management (PCM).  Usually, a company, will say, “I don’t have time for profit.” right before it notifies the PCM software vendor that it cannot buy the vendor’s Read More!

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Jul 232012
 
The 6 Reasons Why People and Organizations Withhold Data (Habeas Corpus Data, Part 2)

Last week we began talking about a common problem in many projects, including Product Cost Management: the withholding of needed data for analysis and modeling.  We also talked about the many reasons, some legitimate and some not, why people refuse to share data. Those reasons are summarized in the graph below. Then I introduced one Read More!

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Jul 192012
 
Habeas Corpus Data (Part 1)

Data. At the end of the day, the data and assumptions that we use in Product Cost Management, specifically in cost models, is as (or more) important than the equations and the approach to modeling itself.  The classic example in cost modeling is raw material rates ($/kg for steel, plastic, etc.). A close second and Read More!

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Jul 092012
 
The Voice of Should-Cost (Voices Series, Part 3)

It’s been a couple of weeks, since we discussed the Voices series, so if this post is interesting to you, you may want to go back and read the first two: Do you hear the voices? (Voices Series, Part 1) The Voices of Discord in Product Cost Management (Voices Series, Part 2) In these first Read More!

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