Technology · Services

Product Cost Reduction: Should-Cost Analysis and Design to Cost

Most of a product’s cost is decided in design. Cost reduction that starts in purchasing finds only what is left.

By Eyal Yavets · 3 min read · לקריאה בעברית

When margins are under pressure, the first instinct is often to negotiate harder with suppliers. That helps, but it reaches only part of the cost. Should-cost analysis shows what a product should cost, and design to cost builds that target into the product from the start.

Should-cost analysis

A should-cost model estimates the cost of each part and process from first principles: materials, processing, labor, overhead, yield and margin. It turns supplier negotiations from haggling into fact-based discussions, and highlights where the design itself drives cost.

Design to cost

• Set a target cost as a design requirement, alongside performance.
• Track cost against target at every design review.
• Evaluate alternatives in materials, processes and architecture.
• Involve suppliers early, when their ideas can still change the design.

Hardware, software and cyber

• Hardware: bill of materials, assembly, test time and yield are the main levers.
• Software: cloud and infrastructure costs, licensing and support effort per customer.
• Cyber: the cost of delivering and operating security at scale, including third-party data and services.

How we work

We build should-cost models, run cost-reduction workshops with engineering, purchasing and suppliers, and help embed design-to-cost practices in the development process.

Questions for the leadership team

• Do we know what our product should cost, not only what it does cost?
• Is cost a design requirement, or an outcome we discover?
• Where are we paying for performance customers do not value?

This article reflects the author’s professional opinion only. It is general information, not professional advice or a recommendation to take any action, and any use of it is the reader’s sole responsibility.