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August 11, 2021

How companies manage their product costs

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Comprehensive and systematic product cost management is essential for the development of innovative, competitive, and market-oriented products in manufacturing industries with a high volume of series production and/or a high technical complexity. Companies using product cost optimisation (PCO) methods are less affected, and thus better prepared for challenges in their competitive environment. Therefore, these companies found their turnover and profit to be positively influenced by PCO.

This study shows that the majority of industries apply product cost optimisation throughout the entire product life cycle; however, companies still need to prepare for major future challenges. Among others, we identified that companies do not focus on the EU emissions trading scheme sufficiently, although the financial impact of CO2 emissions is becoming a bigger part of total product costs. Additionally, it was shown that companies across all industries need to strengthen their focus on the software part in their products as this sector continues to grow dramatically. This was shown as the majority of companies still apply traditional PCO methods used for the hardware product life cycle and do not have experience in adapted PCO methods tailored to the significantly different software life cycle.

The biggest possibility for influencing costs is in the initial phases of the product life cycle, whereas in later phases (series production, purchasing, after sales) around 93 % of total costs are fixed, according to literature. Still, companies apply PCO methods throughout the entire product life cycle; however, ideas developed in late phases usually have a smaller impact on cost savings.

We advise companies to apply a broad spectrum of PCO measures and extend their focus on the identified future trends, as we see a strong need to apply advanced PCO methods on software products, for example. Additionally, future PCO measures need to incorporate not only the social and environmental, but also the financial impact of a product’s CO2 emissions, in addition to common financial saving potentials. The chance is now to take the lead, creating a major competitive advantage in the coming years.

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