A competitive product must address factors such as cost, performance, aesthetics, schedule or time-to-market, and quality. The importance of these factors will vary from product to product and market to market. And, over time, customers or users of a product will demand more and more, e.g., more performance at less cost.

Cost will become a more important factor in the acquisition of a product in two situations. First, as the technology or aesthetics of a product matures or stabilizes and the competitive playing field levels,competition is increasingly based on cost or price. Second, a customer's internal economics or financial resource limitations may shift the acquisition decision toward affordability as a more dominant factor. In either case, a successful product supplier must focus more attention on managing product cost.

Effective product cost management requires an efficient costing system. A well-developed cost approach consists of the following elements:

• An understanding of customer affordability or competitive pricing requirements by the key participants in the product costing process;
  


• Establishment and allocation of target costs at various stages of the production so that they can be effectively managed;
  


• Existence of a system to capture cost-data and commitment by personnel to development budgets and target costs;
  


• An understanding of the product's cost drivers and consideration of cost drivers in establishing product specifications and in focusing attention on cost reduction;
  


• Product cost models and life cycle cost models to project costs early in the development cycle to support decision-making;
  


• Active consideration of costs during development as an important design parameter appropriately weighted with other decision parameters;
  


• Creative exploration of concept and design alternatives as a basis for developing lower cost design approaches;
  


• Use of value analysis / function analysis and its derivatives (e.g., function analysis system technique) to understand essential product functions and to identify functions with a high cost to function ratio for further cost reduction;
  


• Application of design for manufacturability principles as a key cost reduction tactic;
  


• Meaningful cost accounting systems using cost techniques such as activity-based costing (ABC) to provide improved cost data;
  


• Consistency of accounting methods between cost systems and product cost models as well as periodic validation of product cost models; and
  


• Continuous improvement through value engineering to improve product value over the longer term.

We at SMD help you to analyse the existing cost systems and develop/improve the present system into a more meaningful one for making crucial business decisions.