How to reduce costs and increase market share through rationalization of the design process of products

How to reduce development costs and increase market share through rationalization of the design process of products

Alexander VOETS

University of Technology Aachen (RWTH), Aachen - Germany Tsinghua University, Beijing - China

Abstract: As the competitive environment rises and the life cycle of a product decreases in length it becomes more and more important to develop products cost efficiently. Products do not yield profit for as long as they used to. Therefore the costs spent have to match the achievable outcome. Moreover, the technology pace harbors the risk that a product that went through a long development process might already be outdated when it is ready for market emerge. Today's companies face the challenge to provide quality products that are up to date and yet at a low price. The money spent on development and production has to be distributed wisely. The rationalization of the design process helps through various approaches to reduce the costs and still remain the product's quality. This paper will examine the approach of applying rationalization to the design process. It will outline the potential of reducing costs and gaining market share through faster market emerge.

Keywords: Rationalization, design process, VDI 2221

1. INTRODUCTION

Products used to be priced after the cost plus rule. A certain percentage was added to the production costs to ensure a profit for the company. Due to globalization and other factors more competitors are in the market and "fight" for customers and turnovers. Globalization has also provided the customers with the chance to choose from more companies and has therefore turned many markets from a seller's market (no/few competition, great demand) to a buyer's market (high competition, little demand). Products cannot be priced due to the cost plus rule anymore; products have to be designed to cost [1]. That means the designers have to remain within certain limits to ensure that people are going to buy the product and the company still makes money with it.

Rationalization of the design process of new products is also important to keep up with the fast paced technological advances and introduce products into the market as long as they are up to date. If the design process takes too long, the product that was developed will already be replaced by a new technology by the time the product is ready for market emergence. Furthermore, the competitive environment gets the chance to emerge their product first and gets a head start. One would probably have no other chance but chasing after turnovers that cannot be achieved any longer. In order to realize decent turnovers and profits the design process has to be rationalized. Products ought to be ready for market emergence as quick as possible while a good product quality cannot be disregarded. A rationalized product design and development process and therefore faster market emergence provides the company with the chance to increase market share and become market leader in a specific segment (Figure 1).

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Figure 1: The importance of time to market (acc. to Kramer)

To examine how the design process can be rationalized we will first have a look at the life cycle of a product and introduce the so-called design dilemma. Chapter four introduces a common approach to design new products. The fifth chapter explains the main approach to rationalization and introduces some rationalization measures. Moreover, this chapter shows how stages of the designing process can be omitted. Chapter six gives a conclusion. Main ideas of this paper were given in the lecture Systematic Engineering Design II [5].

2. LIFE CYCLE OF A PRODUCT

The life cycle of a product is traditionally divided into three phases: Phase of market emergence, phase of market introduction and phase of market presence. During the phase of market emergence costs arise due to the consumption of resources. This phase consists of the product planning and development and the preparation for market introduction. First turnovers occur in the phase of market introduction and the break­even point (profit=0) is reached. Thereafter the phase of market presence follows. Positive profits even out the money spent on product planning and development and add value to the company as long as positive profits are achieved. As soon as the market is saturated the turnover decreases and profits may become negative.

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Figure 2: Product life cycle (acc. to Kramer)

3. THE DESIGN DILEMMA

Even though the design process itself does not cause a large amount of the overall costs, it still determines the biggest amount of the overall costs of a product (Figure 3). The design dilemma states that about 70% of the product costs are determined by the design, while the design only causes 2%-10% of the product costs.

However, the importance of rationalizing the design process is not justified by the costs that are caused by it but by the importance of the time to market. Again, if the design process takes too long, the product is not up to date anymore or competitors may have prior emerged a product. The company would be left with only a small share of the possible market potential in this segment. Moreover, due to large efforts in the areas of efficiency enhancement and rationalization of the production process there is not much potential left to further reduce costs. Therefore the importance of the design process has grown even further [9]. It is not all about reducing the costs of the design process but to shorten the design process through rationalization to emerge products prior to the competitors and gain market share (Figure 1). Therefore, rationalization of the design process of new products means: reducing costs due to consumption of resources, shorten the design process, emerge products prior to competitor and gain market share. To understand the main approaches to rationalization we will take a look at the process of development and design - the VDI 2221.

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Figure 3: Costs caused and predetermined by different departments (Bronner, Holste in Eversheim 1998)

4. HOW TO DESIGN NEW PRODUCTS - THE VDI 2221

Errors in the designing process cost money. In order to avoid unnecessary errors it is suggested
to carry out the designing process systematically [9]. One way to approach the designing of a new product is the VDI 2221 guideline to develop and design new products (Figure 4).

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