Product Cost Reduction and Architecture

With continuous cost pressures on products, companies are constantly looking for ways to cut costs out of their products. If you are in the same situation as many others, you probably are exploring your options in these two main areas:

  • Re-design all or parts of the product for lower cost,
  • Outsource all or parts of the product to a lower cost manufacturer.

In most cases, re-designing a product from scratch is prohibitively expensive, with questionable return on investment (ROI). Similarly, outsourcing the whole product is risky for your intellectual property, which you have heavily invested in.

When you need to cut costs quickly and with minimum risk, the obvious solution is to find the low-hanging fruits for cost reduction and tackle those areas first. But, how do you partition a product, identify and isolate the target assemblies, and ensure painless re-integration after taking out the costs? This is the main challenge that is derailing many cost-cutting initiatives.

The solution to the problem lies in the architecture of the product. Most products are not architected in the first place to allow partitioning and re-integration. This does not necessarily mean that one should give up. Instead, take the following steps to significantly improve the chances of your cost-reduction activity:

  1. Create an architectural representation for the existing product. A good architecture should include, as a minimum, the following four components:
    i) Functional architecture: what does the product and its sub-assemblies do?
    ii) Design architecture: what sub-assemblies and components does the product have?
    iii) A mapping of functions to sub-assemblies: what is the function of each sub-assembly and component?
    iv) Interfaces: Identification of each interface between the sub-assemblies.
  2. Identify acceptance criteria for each sub-assembly. How do you know that sub-assembly is doing what it is supposed to do?
  3. Target one or more sub-assemblies for cost reduction. Control re-design or outsourcing through established acceptance criteria and interfaces.
  4. Re-integrate lower cost sub-assemblies and enjoy higher profitability.
  5. With the baseline you established in steps (1) and (2), repeat steps (3) and (4) as necessary.
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