Navigating the design to manufacture journey: Managing Costs
Posted on 23/06/2020
Cashflow challenges can sink brilliant ideas. Failure to plan where investment is coming from pre-revenue can leave you stuck.
There is no one-size-fits-all approach to manage costs in your manufacturing journey. The right strategy for you depends on the nuances of your project. However, some general principles apply.
It’s important that you understand the overall process: the decisions that need to be made, the information that’s needed to make them and the timing for sign off. Costs and consequently cashflow needs to be planned around these decisions. If you wait until you run out of money, it’s too late. You need to know where cash is coming from.
One of the biggest hurdles of the design to manufacture journey is the significant financial commitment required to scale up manufacturing. Without thinking holistically about your product development journey, you could find yourself with a design that is functional and simple enough to manufacture, but it is not desirable in the least or worse your design is desirable but too costly to sell or too complex to manufacture.
The sweet spot of successful commercial products lies in between desirability (people want it), viability (it can be done) and feasibility (it makes financial sense to do so). Desirability is often the key focus for innovators when developing products. However, estimating and reducing your manufacturing and sourcing costs early in the design journey help to achieve higher margins, lower costs and more sustainable growth.
Erica Melo-de-Carvalho, PhD intern with the Manufacturing team at KTN, summarises her key takeaways from the managing costs webinar:
Develop an understanding of the process so you can anticipate costs
- Learn about the product development journey and appreciate the process and costs involved. Design decisions can have a domino effect.
- Budget comprehensively for your design, prototyping test, tooling and manufacturing set-up costs (with contingency 25%). Initial investments cannot cover the costs of producing production tools, let alone your first minimum production quantity order.
- Prepare your cash flow projections accordingly and push for favourable payment terms from partners.
- Test both of your market and technical assumptions via prototyping. Use virtual prototypes when possible. Is it going to be accepted by the market? Does it comply with regulation and standards.
- Know your market, nail down target costs and volumes. Does the product respond to market trends and drives? Does the value proposition for this product make sense based on production cost.
- Establish design freeze dates early. Large-scale design changes post-engineering phase can be very expensive.
- Build or partner with a team that has experience with the applicable manufacturing processes to ensure efficiency and avoid costly rework. What is the experience & capabilities of the team to design for manufacture? Work with designers and manufacturers early, they can help you identify problems. Make sure to get a quote that covers you right from where you are on your journey to gold-standard production samples.
- Think about the components you’re using and the details of design
- Fewer components mean fewer quality issues. Less parts are easier to maintain and faster to assemble. Keep it as simple as possible:
- Use off the shelf parts as opposed to bespoke components.
- When thinking about the whole-life cycle (distribution costs, for example) weight reduction might have an impact on profitability.
- Don’t over engineer. Think about the cost of each function you are adding. ‘Nice to have’ functionality adds cost and may not be desirable.
- Always avoid designing for niche methods of manufacturing unless the value-added is justified. Is the concept manufacturable efficiently for your desired method of manufacture?
- If not manufacturing in-house, ensure you have access to a competitive, reliable supply chain. Is there a reliable supply chain in place? Look at the supply chain for potential methods of manufacture and enquire.
It is normal not to have the answers to these questions straight away, but it is important to keep asking yourself these questions time and time again, allowing information to mature and the picture to clarity as you navigate the design to manufacture journey. Be honest with yourself regarding the true costs of development. Budget and fundraise according to your end goal or you risk spending all the funds on developing a prototype.
We’ve been running a series of weekly webinars – Navigating the Design to Manufacture Journey – during #lockdown in partnership with Product Design Scotland, where we engaged with a number of industry experts exploring all aspects of systems thinking from funding and investment to scaling up manufacturing. If you managed to join us for some or all of these webinars, great. If not, you can catch up on recordings from the series here.