Designing Low Cost Products
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by Dr. David M. Anderson, P.E., CMC
Fellow, American Society of Mechanical Engineers
 

PREREQUISITES


A) Product cost must be computed based on Total Cost that quantifies all costs, including overhead costs, and rationally allocates all appropriate costs to every product variation.

1) Total cost measurement complies all the cost for every product variation that, when subtracted from the selling price, yields the true profit, which is the only way to compute realistic profitability. Being able to sort all product variations by true profitability can provide:

• an objective basis for product portfolio planning that will prioritize resources based on developing products with highest expected return from given resources.

• an objective basis for rationalizing away money-losing products

2) Total Cost encourages behavior that actually minimizes total cost – meaning all costs.

3) Without total cost, new product development efforts are in danger of being compromised and penalized in three ways:

• Product development resources may be diluted pursuing too many products that may all appear equally rewarding, which is statistically unlikely. On the other hand, total cost measurements will better estimate profitability, thus enabling development efforts to be prioritized on only the highest return efforts

• Resources may be drained away from product development teams to build unprofitable existing products that true profitability metrics should have been identified and rationalized away.

• When the new product is launched, it will have to pay a loser tax to subsidize all the unprofitable products, thus raising the new product’s selling price, which, in turn, will make it less competitive.

For more on Product Line Rationalization, see the summary article on Rationalization or the full chapter (Appendix A) in the book Design for Manufacturability & Concurrent Engineering


B) Avoid counterproductive policies that inhibit or thwart good product development such as overloading Engineering with low-profit new development projects, “taking all orders” and “accepting all customizations” for existing product variations, deadline “management” (which can be counterproductive if poorly set deadlines don’t encourage thorough up-front work), not quantifying total cost, trying to remove cost after the product is designedlow-bidding on custom parts, and offshoring to “save cost,” which prevents Engineering working together with Manufacturing (concurrent engineering).  See Ortho World's summary : "Why Offshoring Manufacturing 'To Save Cost' Won’t, but Trying May Compromise Product Development, Delivery and Quality" at https://www.orthoworld.com/index.php/publications/view_article/221614

After DFM training, one large company that had pioneered many of these, needed to launch an initiative called "DFM vs policy" to correct current counterproductive policies for their first product development team to utilize these new methodologies.

 HOW TO DEVELOP LOW-COST PRODUCTS

The following methodologies are presented in order of most effective first. For ambitious cost goals, all must be employed:

1) How to achieve cost goals with concept simplification and breakthrough concepts for major cost goals.

Since the concept stage determines 60% of cost concept simplification is important for modest cost goals, whereas breakthrough concepts are essential for major cost goals. Here are two examples of concept optimization, one electrical and one structural, that show examples of applicable breakthroughs. All these methodologies are presented in Dr. Anderson’s seminars and explored in his workshops.

For Electronic Products

Base the architecture on high levels of silicon integration, either off-the-shelf (VLSI, FPGAs, etc.), custom silicon (ASICs), or programmable off-the-shelf silicon (like FPGAs). These chips combine may functions into dense “integrated” chips, thus replacing many “discrete” chips. This can minimize assembly steps, lower placement assembly charges, reduce material overhead costs, and lower quality costs (next numbered topic).

• A breakthrough concept would be past the threshold after which circuitry could be condensed to fit on a single printed circuit board (PCB).

Minimize inter-board wiring complications to reduce assembly cost and lower quality costs, which are both very high for hand soldered wires. At the minimum, multiple circuit boards should plug directly together with all connectors automatically placed and soldered.

• One breakthrough concept would raise the silicon integration to condense electronics to a single PCB that would eliminate the need for inter-board connections.

• Another breakthrough concept would be to connect multiple circuit boards with flex layers which are insulated flexible traces that are actual layers on all circuit boards so that all signals flow through traces that are automatically soldered to all components in the circuit without any mechanical connections. This eliminates many performance and quality variables, which lowers product development expenses, minimizes launch delays, and reduces quality costs and reliability liabilities.
These flexible traces can also be automatically soldered to non-board-mounted components such as switches, controls, displays, antennas, and connectors to other subassemblies.

Minimize expensive, low-quality, unreliable connections, such as those made by hand soldering or wiring lugs to terminal blocks, both of which require skill and have a high potential for errors and mistakes. At the minimum, wiring lugs screwed into terminal blocks could be replaced by connectors and cables, hopefully standard and available off-the-shelf.

• A breakthrough concept would be an architecture that is based on pairs of standard connectors coupled together with off-the-shelf cables. For instance, for up to 9 wires, use a standard DIN “serial” cable; for coaxial wiring, use standard coax connectors and off-the-shelf coax cables. Thus, multiple pairs of off-the-shelf cables would replace very expensive wiring harnesses that are made by hand, usually using “tooling” that consists of a plywood sheet with wire paths indicated by back marker lines between nails, which can easily lead to mistakes and poor quality joints.
Such standard connectors would be designed into circuit boards, connector panels, and specified for connected devices (with “extra” space provided by higher levels of silicon integration, more compact components, and more space-efficient circuits).

• Minimize the cost of configurations and variety

• A breakthrough concept would be to strive for the maximum configurability done programmably.

• Another breakthrough concept would be an architecture based on common, versatile bare circuit boards, onto which various sets of components are automatically placed and soldered as needed. Note that all PCB assembly machine tools are CNC programmable machine tools, but most are use in a batch mode.

Use modular design to reduce development effort, save cost, and improve quality. At the minimum, companies can reuse their own proven modules that can be assembled by plugging them into to common interfaces.

• A breakthrough concept would be to design the architecture to include interfaces to accept standard off-the-shelf modules, such as PC boards for processing, memory, control, input/output, power management, and other standard functions.

• Another breakthrough concept would be structure families of products (product platforms) around an architecture that allows maximum proportion of pre-written software modules that can be combined for a wide range of product variations. The strategy would modularize software code into objects with a well defined programming interface, which will:

• Minimize software development costs with broad reuse of modules for subsequent, derivative products/variations, and parallel products in a product family.

• Minimize new code writing with the maximum reuse of software modules.

• Systematically eliminate bugs, by thoroughly debugging modules and then reusing the debugged modules – This is HP’s debugging strategy for non-patchable products. This strategy depends on allowing no changes or modifications to debugged modules, unless a new round of writing new code and debugging is warranted.


For Large Structures

Avoid large weldments that are hard to manufacture. Large weldments require much skilled labor to make and expensive large machine tools to machine all the features and mounting holes after welding. With the possible exception of large pressure vessels that must be monolithic, large welded structures incur the following costs that can greatly be reduced:

• high-skill labor cost to weld plus other labor to position, fixture, straighten warpage, and grind.
• the cost and delays for annealing the weldments or the risk of fractures from residual stresses.
• the imprecise and labor intensive practice of mounting parts in slots or large holes and then aligning them manually.
• machining large parts after welding, which may require large machine tools and furnaces to anneal them, which (a) are very expensive to buy or have high hourly charges to outsource, (b) usually involve labor-intensive on-line setups which adds more time to expensive machine charges and increase the build time, and (c) may involve transportation and queuing delays.

Similarly, large castings are expensive to cast after lengthy setups plus the molds/dies are expensive and their construction may incur long lead times.

• A breakthrough concept would be to avoid or replace these with assemblies of parts that are manufactured automatically on affordable CNC machine tools and assembled precisely and rigidly by various DFM techniques as presented in the Workshop for Reducing Cost and Material Usage for Large Parts.

• An alternative would be go initiate independent design studies to generate promising approaches for the company to evaluate, select, and implement. Given his experience both welding and machining, Dr. Anderson is particularly effective for complex parts that could benefit from very manufacturable design concepts and concurrently engineered low-cost processing.
 

For Other Products

Look for breakthrough concepts for new products on a clean-sheet-of-paper premise, even if constraints are not that open. The premise will help generate many ideas that might encourage such a venture and, even if not, some ideas may be applicable to less ambitious projects.

Look for breakthrough concepts for much better modules or subassemblies that can become backward-compatible replacements on existing products and then become the basis for new designs – this is the premise of the Workshop to Reduce Cost and Steel Usage.

Arrange Product Specific Workshops for important product development projects to apply these principles and brainstorm for breakthrough concepts.

Arrange for independent design studies to pursue breakthrough concepts.
 

2) How to reduce Quality Costs by Design

The Cost of Quality

The second most effective cost reduction opportunity is designing products for the minimum quality costs. Unfortunately, in most companies, this “falls below the radar” because quality costs are not quantified.

The article on How to reduce Cost of Quality opens with a quote from Chuck Cox, Master Six-Sigma Black-Belt from the George Group: “If you haven't been doing ongoing continuous improvement, then you can expect that your Cost of Quality will be between 20% and 35% of the revenue stream or the product’s selling price.” For military/government contracts the figure could be 45%.

Often, the dollar value of the Cost of Quality is so high that managers don’t believe it. So Cost of Quality should be one of the first “cost drivers” to be quantified by Total Cost quantification initiatives.

Cost of quality categories include:

Factory quality costs for: Rework, Diagnostics, Reinspection of rework, Scrap, Value of replacement materials and parts, Purchasing actions to procure replacements materials/parts, Analysis of quality problems, Planning and corrective actions, Supplier corrective actions, Change-induced quality costs, Setup change scrap/rework until first good part, Sorting/screening out sub-optimal merchandise, Inventory carrying costs for extra inventory caused by quality problems, Discounting sub-optimal merchandise, and Change orders to correction quality problems.

Field failure and reliability costs for: Dealing with customer complaints, Refund/compensation/allowance costs, Returned goods, Warranty costs, Recalls, Retrofits, Patches, Penalties, Liability costs, Loss of Goodwill, Reputation degradation, Damage control costs, and Lost sales.
 

How to Develop Products to Minimize the Cost of Quality

The article: How to Assure Quality by Design presents many ways that product development can minimize the cost of quality, in addition to providing a higher-quality product that will increase sales. Design methodologies include:

• Observe Quality and Reliability Design Guidelines that are in Chapter 10, A Design for Quality, in the book Design for Manufacturability & Concurrent Engineering.

Understand past quality problems by studying lessons learned and developing proactive plans to avoid costly problems in new designs.

Raise and resolve issues early by: learning from past quality problems; early research, experiments, and models; generate plan-B contingency plans; and proactively devising and implementing plans to resolve all issues early.

Use Multi-functional teamwork. Break down the walls between departments with multi-functional design teams (Deming's 9th point) to ensure that all quality issues are raised and resolved early and that quality is indeed treated as a primary design goal.

Utilize Quality Function Deployment (QFD) to define products to capture the voice of the customer the first time without the cost and risk of changing the design during product development, which increases development expenses and cause either development delays or encourage "cutting corners."

Do Thorough Up-Front Work (a key element of Concurrent Engineering) so product development teams can optimize quality by design.

Simplify the design for the fewest parts, interfaces, and process steps. Elegantly simple designs and uncomplicated processing result in inherently high quality products.

Minimize the exponential cumulative effect of part quality and quantity by specifying high-quality parts and minimizing part count. The figure in the article on Design for Quality shows that the quality of the product (the first-pass accept rate) will be (assuming perfect processing) equal to the quality level of the parts to the exponent of the number of parts! This graph encourage high-quality parts and fewer of them to maximize quality.
       High-quality parts can remove that variable from product development efforts, thus assuring that achieving the desired functionality will not be delayed – or incur more cost – because of part quality issues.

Select the highest quality processing. Automated processing produces better and more consistent quality than manual labor.

Optimize tolerances for a robust design using Taguchi MethodsTM to ensure the high quality by design.

• Utilize Poka-Yoke principles in product development to prevent mistakes by design in addition to traditional manufacturing techniques to prevent incorrect assembly or fabrication.

Proactively minimizing all types of risk, not just functionality. For critical applications, use Failure Modes Effects Analysis (FMEA).

Base Cost Metrics and Compensation on Total Cost and the Time to Stable Production to avoid compromising quality with cheap parts to save A cost@ or throwing a sub-optimal design over the wall Aon time.@

Reuse proven designs, parts, modules, software objects, and processes to minimize risk and assure quality, especially on critical aspects of the design.

• Document thoroughly and completely with 100% accuracy and completeness.

Thoroughly design the product right the first time. Use Design for Manufacturability techniques presented herein to ensure that a quality product is design right the first time. Having to redo steps adds to product development expenses and delays the time-to-market.
 

3) How to Maximize Manufacturability while Minimizing the Product Development Expenses and the Costs of Delays, Firefighting, and Change Orders.

The Traditional Timeline

The top graph at the right shows the traditional team participation that starts with a poor product definition and an incomplete team (usually missing Manufacturing , Procurement, and Vendors) that makes arbitrary decisions that soon get “cast in concrete.” These shortcomings and late consideration of cost and DFM cause many redirections that delay product development.

But all this lack of thorough up-front work causes a painfully slow ramp-up (center graph), which causes a lot of post-release problem solving, firefighting, and change orders (the post-release portion of the top graph). Even after the volume production has been reached, there is still more problem solving, firefighting, and change orders to fix quality and productivity shortcomings.

Unfortunately, when the traditional curve eventually does reach the target volume, it is late, which may incur penalty costs, overtime charges, expediting costs, and the cost of lost sales, not to mention the lost development opportunities when resources are too busy to work on the highest return products.

The Advanced Timeline

By contrast, in the advanced model (the lower graph), thorough up-front work not only eliminates the firefighting and change orders, but the workload drops off after the architecture phase optimizes off-the-shelf part selection, utilizes previous modules, and brings in vendor/partners s early to help design the product. The result is the time to stable production (the only relevant measure of time) occurs in half the time. This also brings in extra revenue.

Product Development Cost Savings

The areas under the top and bottom curves represents engineer-hours. The graph shows that the traditional time-line can consume twice the engineer-hours as the advanced model, which means that product development expenses can be twice what they should be – or more.

The DFM book and seminars show dozens of ways to shift from the back-loaded model at the top to the front-loaded model at the bottom and do the thorough up-front work that enables the other methodologies presented in this article.
 

Manufacturability Cost Savings

Ensuring that all specialties are working together early allows design teams to design products for manufacturability by:

• Listening to manufacturing, quality, procurement, and service team members will raise awareness of manufacturing issues. Applying their knowledge and experience will help the engineers design for manufacturability.

• Investigating and understanding lessons learned about the manufacturability of previous or related products. Then create action plans to do what worked and avoid what didn’t.

• Understand and obey design guidelines. Dozens of these design guidelines are presented in Chapters 8 and 9 of the book, Design for Manufacturability & Concurrent Engineering with several presented in the accompanying article on DFM.

• For printed circuit boards, design rules are well documented. To ensure manufacturability, obey all design rules for printed circuit boards for: component placement, spacing, and layout; proper geometries/spacing for pads, holes, vias, traces, probes, test access, test fixtures, locating features, and stay-out zones. All components must be automatically placed and soldered. Lay out circuit boards to ensure testability at the architecture level, which requires early teamwork with test engineers.
 

4) How to Minimize Design Costs with Vendor/Partnerships

The accompanying article Saving Cost and Time with Vendor/Partnerships shows that using Vendor/Partnerships to concurrently engineer custom parts will save more money than sending out for bids on unmanufacturable parts that were designed in isolation.

This saves cost because vendor/partners thoroughly understand DFM guidelines, know their process capabilities, and can help company engineers avoid arbitrary decisions, which unnecessarily raise cost, delay delivery, and compromise quality. The vendor’s tooling engineer can work with company engineers to design for tooling that will cost the least and produce the highest quality parts.

Further, vendor/partnerships benefit from learning relationships where the customer and vendor learn from each other, thus making each job better, faster, and less expensive.

• Vendor/partners will provide the lowest total cost because interacting directly with the customer’s team results in vendors:
• thoroughly understanding the challenges and issues
• making “what if” suggestions early that will maximize manufacturability
• working with customers early to minimize total cost

Vendor/Partners will not have to add a “cushion” to deal with unknown customers or unfamiliar designs.

Vendor/Partnerships also avoid the cost of delays and change orders to fix unmanufacturable designs that were “thrown over the wall.”
 


5) How to Minimize Supply Chain and Material Overhead Costs by Design

Availability. Designing in readily available parts and materials eliminates the effort to find replacements or the cost to write change order or the cost to buy up a lifetime supply of parts that are going out of production. It also eliminates expediting shipments of parts, materials, or products and limits the cost of misses sales caused by shortages. This benefit is enabled by the shifting purchasing agents from managing bidding wars to helping teams select parts for the best availability.

Standardization. Designing around standard parts lowers part cost and leads to better purchasing leverage and economy-of-scale savings. It also lowers these overhead costs:

• Material overhead that can be 1/10 of non-standard parts, which reflects savings in purchasing efforts and encourages engineers to specify standard parts, thus lowering total cost.

• Standardization results in few parts to order and stock, thus resulting in less materiel overhead cost and less inventory carrying costs.

• Standardization results in less expediting and fewer change orders to solve availability problems

• Deliveries can be faster, more frequent, more dependable, and less affected by shortages.

• More efficient internal distribution – for fewer parts – with dock-to-line deliveries possible

Inventory. Inventory carrying costs can be eliminated by designing for build-to-order with concurrently engineered flexible processes, thus saving about 25% of the inventory value per year!

Customization. Products and processing can be designed for cost-effective Mass Customization to replace expensive “customization by firedrill.”

Off-the-Shelf Parts offer much potential to ensure part availability, free resources from designing redundant equivalents, lower product development expenses, and lowers costs of design, documentation, prototyping, testing, and the overhead cost of purchasing all the constituent parts.
However, off-the-shelf must be selected first before arbitrary decisions preclude their use. The paradox of product development is that:
 

Designers may have to choose the off-the-shelf parts first
and then literally design the rest of the product around them.
 

 

These are the general principles. Pass around this article or URL to educate and stimulate interest

In customized seminars and webinars, these principles are presented in the context of your company amongst designers implementers, and managers, who can all discuss feasibility and, at least, explore possible implementation steps

In customized workshops, brainstorming sessions apply these methodologies to your most relevant products, operations, and supply chains.

Call or email about how these principles can apply to your company:

 

For more information, call Dr. Anderson at 1-805-924-0100
or e-mail him at anderson@build-to-order-consulting.com.
To explore the opportunities of these techniques at your company call or email
with your name, title, company, phone, types of products, and needs/opportunities


HalfCostProducts.com
www.design4manufacturability.com
phone: 1-805-924-0100
fax: 1-805-924-0200
e-mail: anderson@build-to-order-consulting.com

 

copyright © 2017 by David M. Anderson

Book-length web-site on Half Cost Products: www.HalfCostProducts.com

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