Why Engineering-Led Cost Reduction is Essential to Hitting Your Targets
August 22, 2022
Are your cost reduction targets feeling particularly stressful lately? While the need to reduce costs each year isn’t a new phenomenon for engineering companies, the factors in the equation have changed. On top of the “business as usual” motives that determine cost reduction targets, ongoing added pressures like inflation and a globally-disrupted supply chain are squeezing margins.
So if your cost reduction targets are extra intense right now, you’re not alone. That’s why more and more industry leaders are turning their attention to engineering-led cost reduction. Without abandoning finance-led or procurement-led cost reduction efforts, it’s becoming clear that teams need to achieve cost savings through design and design processes if they want to keep up with cost reduction targets.
If you’re feeling the squeeze, shifting your focus to engineering-led cost reduction might be the answer. Read on for insights on why you may need to pivot your cost reduction approach, and what you can do to start making it happen quickly.
Easy wins aren’t enough anymore
Okay, maybe they weren’t always “easy” wins to achieve. But within your company, there are likely some go-to methods for bringing costs down. Maybe it’s typically fallen to a finance manager, to a supply chain manager, or to an engineering leader themselves; maybe it’s been a collective responsibility. Regardless, with any business, there are different levers you know you can pull to make sure you hit your cost reduction numbers.
So when you’re planning how to meet your targets, you start with those go-to methods. You go to your suppliers or chat with your engineers—and you figure it out. You get strategic about dual-sourcing, take advantage of bulk/volume discounts, whatever it takes.
However: these standard, default tactics have now become table stakes. You should still do these things, to be sure. But they’re no longer going to be enough for you to hit your targets, or to gain an edge on your competitors. The primarily finance-led and supply-led approaches that got you to this point aren’t going to carry you through the current global landscape and competitive environment.
Not only are there extra pressures from external factors like rising inflation, there’s also the reality that product development is more complex and multidisciplinary than ever before.
So even if your company already invests time and resources on engineering-led cost reduction, there’s huge opportunity for the teams that take it up a notch. When teams adopt a more robust, structured approach and enable greater cross-functional collaboration, engineering-led cost reduction delivers the kind of results that make a real impact on your bottom-line KPIs.
Better by design: why engineering-led cost reduction is necessary
What does engineering-led cost reduction mean? Engineering-led cost reduction is any method for achieving cost savings through a product’s design or through the processes used to design it. It’s not a single, specific process or methodology. It’s an umbrella term that can refer to many different activities, approaches, or tactics. It can include techniques like value analysis (VA), value engineering (VE), or design-to-cost (DTC).
Engineering-led cost reduction is going to look different at every organization, depending on all the usual factors. For large enterprises, there may be one or more dedicated VA/VE teams; for smaller companies, it might fall to one person or it might be a distributed responsibility among the entire team.
But no matter what level of resources your team can devote to cost reduction, this is an area to buckle down and ensure you’re taking the most effective approach. When you make focused improvements to your cost reduction approach, it has a self-perpetuating ROI. Yet many companies right now still have plenty of room to improve when it comes to engineering-led cost reduction.
To figure out a company’s cost reduction maturity level (roughly), it helps to ask these questions:
- Is there a person, team, or teams dedicated solely or primarily to cost reduction work?
- Is there a clear, structured approach to cost reduction?
- Is the cost reduction approach an effective, repeatable process (or set of processes)?
If you can answer “yes” to all three of these questions, you’re well-positioned to see impactful results just by making a few strategic upgrades to your cost reduction strategy.
Answering “no” to one or more of these questions means your cost reduction strategy might need more than just tweaks. But it also means you might stand to gain an even bigger impact from revamping your cost reduction approach!
How to ramp up your engineering-led cost reduction approach
Let’s say you’ve bought in. You’re on board with the idea that engineering-led cost reduction is a smart place to focus right now. You see why it pays off to change or refine your engineering team’s approach to cost reduction, and you want to make it happen.
Where do you start?
Well, that really depends on where you already are. Your starting point has to fit into the context of your particular team, business needs, business goals, and all the many nuances that need to be considered.
So, as with anything, you start by taking stock. Figure out what the current activities and processes look like, what your current resources are, what’s working, what’s not, where the gaps are, and so on. It doesn’t need to be perfect and polished; it’s just about taking that time to reflect on your current state and think it through.
Once you’ve sketched out your current state, you might’ve already started thinking about your ideal future state. Depending on your situation, that future state could be either crystal clear or highly hazy. The gap between those current and future states might be teeny-tiny, or it might feel like a massive trench. For most people, reality will be somewhere in between those extreme ends of the spectrum.
And so, although there’s obviously no one-size-fits-all template that can tell you exactly what steps to take to start moving toward your ideal future state—here are 3 ways to boost the impact of engineering-led cost reduction efforts.
1. Lower the participation barriers
Cost reduction and VA/VE approaches have historically been pretty heavily reliant on air travel. But it’s hard to effectively scale a cost reduction program that’s too centered around “flying everyone in.” Even if your team has already incorporated or switched to virtual workaround methods to some degree, the right digital processes should enable more people to give input, more often. Are there ways you can facilitate smoother cross-functional collaboration? Is there work that could be done asynchronously? Define the entry barriers to your cost reduction process, and figure out how you might lower as many as you can. Because when it’s easier for more people to participate, you end up with stronger ideas (and more of them).
2. Shift from discrete VA to continuous VA
Is your approach to cost reduction and/or value analysis largely event-based or meeting-based? Now is the time to opt for a structure that supports ongoing, continuous VA and cost reduction efforts. When it was necessary to physically get everyone in the same place, at the same time, that inherently meant that your cost reduction work would be largely discrete. But as norms shift toward virtual and hybrid methods, your cost reduction approach should also shift toward a more continuous framework. With the right structure in place, you can remove the constraints that have typically limited your cost reduction efforts. Instead of relying on one or two big cost reduction events per year (with all the logistics and travel costs that come with them), smart engineering teams have already started finding ways to do more cost reduction and VA/VE throughout the year—or even to bake it into other processes.
3. Develop a repeatable, consistent structure
Standardizing your cost reduction approach has numerous benefits. For one thing, you can’t scale your cost reduction efforts if there’s no repeatable process in place. You might have a dedicated VAVE or cost reduction team, but your approach might not be very structured; or maybe there is structure, it’s just not very repeatable. Either way, it shouldn’t feel like you’re starting from scratch every time you need to organize cost reduction work or plan a VA event. With a repeatable framework, your team can work more effectively and your efforts become scalable. On top of that, following a consistent format each time means you’ll be able to accurately compare data from your VAVE and cost reduction activities. Which means you’ll have the information you need to know what’s working or not, and to make better decisions.