…and getiing rid of the superfluous !
Your product is well designed and even sophisticated.
You priced it…at the market price.
You have been careful to its cost price during the design stage.
Then all the ingredients are gathered to generate profits.
But, did you look deep enough?
How would it be possible to minimize the cost price in order to highlight what really worth to your customer and cut costs elsewhere?
Discover the value engineering (or value analysis), a simple tool to use with immediate benefits that we like to use with our customers.
Value Engineering? A positive effect on your margin but also a better adequacy between your customers’ needs and the costs.
To sum up, it is about focusing on the value attributed by the customer and eliminating the useless and unnecessary.
To make it simple, the value that a customer attributes to a product will be even more important when his needs are met. For that, you should know them and satisfy them in a clever way. On the contrary, a function of a product that does not satisfy any need expressed by the customer will not be valued. Then, there is an emergency to fulfill these functions (often necessary due to some constraints) at the lowest price.
Are your ready for a value analysis in 3 steps?
Step 1: Information gathering, make a list of all the functions of your product
Because the list can be long, we advise you to sort them in “families”.
- Main functions of the product (e.g. main uses offered to the customer)
- Complementary function that often have an esteem value (e.g., the design or decoration of the product, branding…)
- Functions imposed by constraints (environmental, legal, statutory, normative or technologic constraints)
- Functions not asked by the customer but necessary (e.g. packaging, fixing system…)
You are free to create the families adapted to your product; the main point is to obtain an exhaustiveness of the product’s functions.
When the list is complete, you are ready for the second step.
Step 2: Attribute a cost to each function
Several methods are available:
- For goods, use your data on the raw material cost and think in terms of components attributed to each function.
- For software, think in term of source lines of code or modules attributed to each function.
This can be done very quickly if everybody is involved and use his knowledge on the cost price of the product. Draw up the end results by function. It can be astonishing!
Step 3: Analyze objectively the situation
What is the relative weight of each function in the global cost of the product?
What are the functions that create the more value for the customer?
What are the functions that contribute to your differentiation on the market?
You have now all the tools you need to make your choice: a clear, global and objective sight of the situation and the retreat to make informed decisions.
- Invest even more in a function (or for the next product)
- Try to rationalize the cost for another function
- Or validate your previous choices
Besides its simplicity, the value analysis is also a great team management tool. By using a common language, it helps gathering all the different profiles of the company around the customer which is the best guarantee of having an appropriate product for the market.
A question? Some difficulties? Don’t hesitate to call Product Managers to accompany you in this approach.
Marielle CROZAT – MOKA CONSULT – partenaire de Product Managers