Summary: Your product development costs are higher than they need to be. Follow these 7 tips to cut them down to size.
Over the last decade, manufacturers have struggled to contain rising product development costs.
And rightfully so.
Forbes reported a x4 increase in product development costs between 2008 and 2013.
With the cost of materials, labor, and production steadily climbing since then, it’s safe to say that product development costs are even more today.
Product development costs increased 4X in 5 years.
To make things even worse, up to 50% of an organization’s revenue can depend on the launch of new products. Which means product development costs are a hefty, but necessary expense for manufacturers.
The reality of this situation is that to remain profitable, manufacturers need to introduce new products to market while keeping their product development costs low.
Which leads us to the point of this blog – how to reduce product development costs.
Today, we look at 7 simple actions you can take to lower your product development costs.
So, let’s get started!
1. Set teams up for success
To succeed, teams need to understand what they’re supposed to do and how to do it. Which means project leaders need to make sure team members know:
- What needs to be done
- Who needs to do it
- When it needs to be done by
But that’s not all.
Teams also need to understand the project they’re working on so that they have context for the products they are making and can meet customer requirements.
When project leaders set a clear direction for teams from the start, they are better equipped to meet deadlines, finish tasks, and meet targets.
When these things are communicated clearly, teams work like well-oiled machines, creating products in line with customer needs on time, and on budget.
2. Automate engineering changes
The numerous engineering changes requests (ECRs) that occur during product development increase costs in two major ways.
- They take up a lot of engineering’s time – which doesn’t come cheap.
- They prolong product development cycles – which increases costs.
Which is why automating engineering changes is an effective way to lower product development costs.
Which is exactly what tools like cloud PDM and PLM do.
Research by CIMdata found that PLM reduces the time spent on the design review process by 50% and lowers product development costs by 25%.
Cloud-based data management systems help contain product development costs because they automate engineering change management, which makes product development a faster, more efficient process.
3. Repurpose old designs
Product development is all about creating something innovative and new.
But this doesn’t mean you have to start from scratch.
Reusing parts from previous designs is an effective way to lower product development costs.
Part reuse simplifies product development as it incorporates parts that have been tested and tried into new products.
It also ensures product quality as the parts being reused are known to work well.
Even better it has a positive impact on product development costs, as part reuse:
- Reduces the labor needed to engineer a product
- Decreases inventory requirements
- Keeps you working with suppliers you know and trust
All of which streamline production and reduce product development costs.
4. Make data accessible
A good chunk of product development teams’ time is spent looking for information they need.
Research by engineering.com found that on average, design engineers spend 5% of their work week simply searching for information.
Design engineers waste 5% of their week searching for data.
This is 5% of their week that they could dedicate to tasks that directly improve product development like fulfilling engineering change orders and increasing design efficiency.
That’s at the low end though. One new product development manager found that 50-70% of his teams’ time was spent on non-productive tasks, primarily pulling, packaging, and sending engineering information wherever it needed to go.
When product data is accessible, teams don’t waste this kind of time looking for information and instead focus on tasks that actually create value for the organization.
Consider what this means for design engineers for example.
When product data is easily accessed, 5% of their week can be reallocated to more important tasks.
And when this happens, the product development process is faster, cheaper, and more profitable.
Collaboration is the silver bullet of reducing product development costs.
When teams collaborate, they work faster and accomplish more.
Which means product development is quicker, and product development costs are lower.
In fact, Deloitte found that the productivity gains collaboration facilitates save companies $1,660 per employee each year.
Collaboration saves companies $1,660 per employee annually.
And that’s not all, collaboration also results in higher quality work.
Collaboration reduces the number of mistakes that make their way to production, saving manufacturers thousands in product development costs.
6. Implement checks and balances
Product development is never a seamless process. Mistakes happen.
Which is okay, as long as their caught early in the product development process.
But when they aren’t, product development costs dramatically increase.
Research by the Society of Manufacturing Engineers (SME) found that errors that aren’t spotted pre-production end up costing manufacturers 2% of their revenue.
Errors that aren’t spotted pre-production cost manufacturers 2% of their annual revenue.
Even worse is when these errors aren’t spotted before the product is sent to customers. When this happens product recalls and the expensive lawsuits that follow them become another huge expense for manufacturers.
And we’re talking about a massive cost here.
A 2017 McKinsey Report found that the cost of one major recall can be as much as $600 million.
Which is exactly why checks and balances are a necessary part of product development. They stop manufacturers from losing 2% of their revenue to scrap / rework, and reduce the risk of expensive product recalls.
7. Make approvals fast and easy
Backlogs in approvals are all too common in the world of product development.
Engineering managers are constantly inundated with designs and changes to review and approve. Which results in a backlog of approvals, that are often made hastily.
The aftermath of these quick approvals can be seen in high rates of rework and error, as well as slow project progress and completion. All of which inevitably, increase product development costs.
But luckily, there’s a way around this.
With streamlined approval processes.
Tools like cloud PLM and PDM improve the approval process by making it possible for approvals to be given directly in the programs reviewers use, or even on the go via email.
Incorporating these tools into product development speeds up the approval process, leads to quicker project completion, and lowers product development costs.
Rapid Fire Summary
Here are the seven easy actions to take to reduce product development costs:
- Outline exactly what needs to be done, when, why and by whom.
- Automate engineering change management.
- Reuse parts during product design.
- Make data easily accessible.
- Collaborate with your team members.
- Implement a system of checks and balance to mitigate production errors.
- Create an efficient, automated approval process.
Learn how cloud PLM reduces product development costs. Book your free demo!