Product designs provide much needed variety in terms of the features and the appearance. An appropriate product design also helps an organization to compete in the market place on the basis of cost, quality and time.
A high proportion of a productâ€™s production cost is determined at the design stage. Take the following cases:
1. General Motors: 70 percent of the cost of manufacturing truck transmissions is determined at the design stage.
2. Rolls-Royce: Design determines 80 percent of the final production costs of the 2,000 components.
At this point, a revision of the cost concepts may be in order. Considering the fixed and the variable costs of a product, the following relationships hold good:
Total Cost = (variable cost x quantity) + fixed cost
Unit Cost = variable cost + (fixed cost/quantity)
Therefore, if a product is not profitable because the fixed cost is high, it would be possible to make it up in volume. Since the fixed cost is divided over the number of units, higher volumes of production should result in lower per unit cost. However, a product that is not profitable because of a high variable cost cannot be helped by increasing the volumes of production and sales. In fact, the more one sells, the more he loses.
That being the case, it is essential to get a handle on the variable cost components such as:
1. Materials cost,
2. Labor cost,
3. Cost of plant and machinery,
4. Machinery and plant maintenance cost, and
5. Cost of packaging the product.
The point to realize is that all these components of the variable cost of production are dependent upon the design of the product. The kind of materials to be used, the number of material items that go into the product, the required level of skills of the production workers (higher skills cost more money), the number and the sophistication of the machinery and automation that is required, the amount of maintenance activity that is required which in turn depends the kind of machinery used and the wear-and-tear of the machinery per unit of production and the type of packaging (kind and variety of materials used, amount of material used) depend significantly upon the particular design of the product. A design dictates a certain level of variable cost.
Once the variable costs are under control, it is important to minimize the fixed costs in order to realize further cost economies. The fixed cost originates from:
(a) Plant or machinery and automation
(b) Labor, and
A good design effort should cognizance of these production cost aspects.
Life Cycle Costs:
The production cost is only a part of the total costs. A particular product design may lower the production costs, but it may significantly increase the costs of quality. It may reasonable costs on both these counts, but may require much enhanced operating costs for the customer when he uses the product. The product, during its uses, may necessitate frequent and more expensive maintenance. The costs of built-in obsolescence due to bad design could be substantial to the customer. Now, everyone realizes the importance of environment and ecology. Certain product designs, due to the kind of materials they use or due to the frequent disposal of the product, disturb the environment more than some other designs. Alternatively, the product design may be such that it involves environmentally more damaging production processes. Life cycle costs are borne by the possessor of the product and also by the society as a whole. They are borne during and even after the life of the product when it is disposed.
A good design effort should facilitate the reduction of all types of cost. It should minimize
* Materials cost,
* Manufacturing cost,
* Quality costs
* Operating cost for the customer,
* Maintenance cost for the customer,
* Depreciation cost for the customer and
* Environmental costs (for the customer and for the society).
What is ideal is that the total cost of the product over its life has to be minimized. There are two points that are being made here:
(a) The total â€˜life cycleâ€™ cost is important and
(b) A high proportional of a productâ€™s life cycle cost is â€˜locked inâ€™ at the design stage itself.