How can design to cost integrate procurement early to protect your margins?

Summary

Design to cost (DTC) eliminates unnecessary costs from the design phase onwards, whilst preserving perceived value. Procurement plays a central role, orchestrating collaboration between departments and suppliers on design decisions that determine up to 80% of the product lifecycle cost. The result: savings that are rapid, measurable and significant.

Contents

• What is design to cost?
• Procurement at the heart of design to cost
• The benefits of design to cost
• From design to cost to design to value

In today’s inflationary and uncertain environment, companies are increasingly focused on cost reduction. This approach is all the more effective when applied as early as possible, during the product concept phase, at the point where requirements are being defined. It is in this context that the design to cost approach, also known as “target costing” or design for cost, is establishing itself as a powerful lever for savings. Both methodical and pragmatic, it involves conducting rigorous cost analysis across the entire product lifecycle, balancing cost targets against customer expectations. The ROI is rapid, and procurement departments are embracing it, positioning themselves as true business partners.

What is design to cost?

Design to cost (DTC) aims to design the right product or service, at the right price. This means identifying and eliminating all unnecessary costs linked to the product lifecycle during the early design phase, whilst ensuring that customer requirements in terms of features and quality are met.

Philippe Rivoiron, Director of the Arolys consultancy, explains: “You need to ask yourself where the complexity, the cost overruns and over-engineering lie. In short, to question which product costs can be challenged and not get lost in non-essential or optional criteria.[1]”

In practice, this might involve removing non-essential functions, revising materials, prioritising standard parts and dimensions, or simplifying assembly and manufacturing processes. The goal of the design process is to optimise value for money without compromising user satisfaction. This enables companies to boost profitability and the perceived value of their products or services.

Procurement at the heart of design to cost

DTC is a well-established tool within procurement departments for achieving lasting cost reduction and creating value. It complements other traditional levers, such as supplier rationalisation and the Total Cost of Ownership approach.

Dr. Mario Büsch, management consultant and procurement expert, puts it clearly: “Sustainable cost savings cannot be achieved through negotiations alone, but can be decisively influenced by early, strategic and cross-divisional measures along the entire product development process. Design to cost combines technical, organisational and strategic purchasing approaches to create a comprehensive concept for systematic cost optimisation”[2]

Whether starting from scratch (design to cost) or reworking an existing product (redesign-to-cost), procurement departments play a conductor’s role. Positioned at the heart of the company’s ecosystem, they are accustomed to working cross-functionally. Supported by consultancies and equipped with the right management tools, they typically lead these projects in close collaboration with suppliers and other departments (engineering, manufacturing, sales and marketing).

Together, these stakeholders focus on the early stages of the product development process. Market analysis, initial exchanges with suppliers and the construction of the product specification can determine up to 80% of the overall product lifecycle cost. The design decisions taken at this early design stage have a decisive impact on production costs and overall cost targets.

Such an approach also requires in-depth knowledge and expertise. Procurement teams master pricing and markets; engineering departments contribute technical know-how on manufacturing processes and assembly; suppliers bring real-world manufacturing expertise; and consultancies provide the methodology and tools.

The benefits of design to cost

Today, the design to cost concept is establishing itself as a true compass for companies seeking to better align usage, performance and costs across their products and services.

The figures speak for themselves: according to many studies, the design to cost approach can deliver savings of up to 40%. Furthermore, the ROI is rapid, effects can be seen within just a few months.

In a report co-led by Capgemini Consulting & Effidyn, a company executive stated: “The results of the design to cost deployment in our company run into hundreds of millions of euros. The methods we developed and the results achieved are so strategically sensitive that we never disclose their content.”[3]

Beyond financial gains, design to cost also drives innovation. By challenging existing processes and product design choices, this strategy encourages engineering and manufacturing teams to find lean, robust and intelligent solutions, commonly known as frugal innovation. Applied across industrial manufacturing environments, it creates the conditions for genuine cost efficiency and engineering excellence.

From design to cost to design to value

Over time, the approach has evolved from a strictly cost-orientated logic to a broader value-driven one. Whilst design to cost is a powerful lever for cost reduction, design to value (DtV) aims to maximise the value created for the customer, whilst securing the profitability of the product or service.

This evolution also reflects the transformation of the procurement function. Far from the reductive role of “cost killer”, the buyer is more than ever a strategic actor in the value proposition. Working alongside teams, procurement helps arbitrate between costs, performance, sustainability and innovation.

It is important to note that the design-to-value approach applies to all types of products, including long tail spend. Standard solutions do not always suffice to meet internal requirements. Ergonomics, technical constraints, specific use cases… all are factors that lead companies to opt for bespoke solutions.

This relies on an agile, collaborative approach centred on the satisfaction of end users. It requires a thorough understanding of internal customers’ needs, as well as the harmonisation of product references.

Design to Value at Manutan

At Manutan, our experts support you in designing bespoke products. Thanks to our network of over 4,000 trusted suppliers, we are able to mobilise the right manufacturing partners and fully coordinate the project to meet your specific requirements. This includes the co-construction of the specification and the solution, right through to the delivery of the product and its technical documentation, including testing and validation.

By reconciling cost reduction, innovation and customer satisfaction, design to cost proves to be a formidable lever of competitiveness and development for companies. However, this approach is accompanied by a profound cultural transformation. It requires the practices of the various stakeholders to evolve and silos between departments to be broken down. This is a tremendous opportunity for the procurement function to intervene ever earlier in projects and to actively participate in value creation.