When a product’s manufacturing costs are too high, the first impulse is often obvious: cheaper materials, cheaper suppliers, fewer machining steps or less expensive components.

These measures can make sense. However, they do not always exploit a product’s full potential.

Because the decisive question is not only:

“How do we make the existing solution cheaper?”

but also:

“Which functions does the product actually have to perform – and how can these functions be delivered with an economically sensible level of effort?”

This is precisely where Value Analysis / Value Engineering comes in.

Typical Starting Points

Systematic product cost optimisation is particularly relevant when, for example:

cost targets in a development project are not being met,
an existing product is too expensive compared with the competition,
the contribution margin is under pressure,
material or manufacturing costs have risen,
many variants and special solutions have accumulated,
individual cost reduction measures already appear to be exhausted,
R&D, procurement and production optimise separately,
it is unclear which product features customers actually value.

In these situations, a purely component-based optimisation often results in a collection of many individual measures without the product being questioned as an overall system.

Understand Customer Requirements First

Before technical solutions are changed, it should be clear what actually matters from the perspective of the relevant customer groups.

This involves examining key buying criteria, must-have requirements, differentiating performance attributes and competitive positions, among other things.

This helps to avoid two risks:

unintentionally degrading important customer requirements for cost reasons,
retaining costly product features that are not matched by corresponding customer value.

Product cost optimisation therefore does not become a blanket exercise in “leaving things out”, but a targeted value improvement.

Look at Functions, Not Just Components

In the next step, the product is examined in terms of its functions.

A component is a specific technical solution. What matters, however, is which tasks it performs. Function Analysis therefore initially abstracts from the existing design and examines the functions of the product as a whole and of its parts.

This raises new questions:

Does this function have to be performed in its current form?
Can it be performed more simply?
Can several components be combined?
Are there alternative technical principles?
Is the current design really necessary for the customer?

This perspective opens up the solution space beyond conventional procurement and component optimisation.

Understand What the Costs Are Incurred For

Costs are then linked to the functions.

Function Cost Analysis answers not only which part is expensive, but which function causes high costs. Functions where costs, technical design and importance to the customer are out of proportion are particularly interesting.

This makes it possible to prioritise commercially relevant opportunity areas.

Develop Solutions in Cross-Functional Teams

Product costs do not arise in a single department. That is why the relevant departments should work on the task together.

Depending on the project, these may include:

R&D and design engineering
Procurement
Production
Cost estimating and controlling
Product management
Sales
Quality
Value Analysis coordinator

Working together prevents one department from reducing costs only for new costs or risks to arise elsewhere.

From Idea to Robust Concept

Successful cost optimisation does not end with a long list of ideas.

Ideas must be evaluated from a technical, economic and customer perspective, combined into concepts and then implemented.

A structured project therefore typically includes:

clarifying the project charter and objectives
analysing customer requirements and the competition
examining functions
determining function costs and cost focal points
prioritising opportunity areas
developing solutions
evaluating ideas
working out concepts and business cases
planning and tracking implementation

What Role Does Value Analysis Play?

Value Analysis is not simply a cost reduction method. It links functions, costs and benefits.

The aim is to deliver the required functions with an economically sensible level of effort while improving product value at the same time.

Particularly for technically demanding products, this approach helps to avoid playing cost reduction off against quality or customer value.

Product Cost Optimisation with Value Coaching

Value Coaching supports companies in Value Analysis and Value Engineering projects – from selecting suitable projects through customer, function and cost analysis to solution development, evaluation and implementation.

The reference projects documented on this website show how the approach is applied in different industrial contexts. The results stated there relate to the specific project in each case and are no guarantee for other tasks.

Two examples: in the motan project example, manufacturing costs were reduced by up to 39%, depending on the product variant. In the Dornbracht project example, the costs of a design-oriented overhead shower fell by more than 30% without any visual changes.

Does an Externally Facilitated Project Make Sense?

An external facilitator can be particularly helpful when:

several departments are involved,
entrenched approaches need to be broken up,
time and methodological confidence are lacking internally,
conflicts between cost, technical and market requirements need to be facilitated,
a structured project approach is to be established.

Next Step

If you would like to check whether a product is suitable for a structured cost optimisation project, a Project Potential Assessment may be a sensible first step. It evaluates the potential, data availability, objectives and a suitable project scope.

Reduce Product Costs: Making Each Component Cheaper Is Not the Only Answer