Tackling Product Cost as a Team Produces Results

Introduction

In many companies today cost reduction is tackled by an individual or by a single function rather than leveraging multiple aspects of the organization. Although this approach is easier since it does not involve seemingly complicated collaboration with others, it is not the most effective approach.

Teams come in many forms. In my first position as a design engineer in a company manufacturing shell and tube heat exchangers for the petrochemical industry, I thought I had an excellent grasp on what was needed to reduce cost on products. It was quickly apparent that this was not the case when the VP of operations pulled me aside and directed me to focus on reducing the thickness of tubesheets to minimize cost rather than minimizing material usage in other components such as flanges and nozzles. What I did not understand was that tubesheets, which separate the tube-side and shell-side of a heat exchanger, require many labor hours to drill tube holes which could involve as many as 20000 holes through 7 – 10 inch thick metal. With my focus being on material cost rather than labor cost, I did not appreciate that most of the cost was in labor. In order to reduce the thickness, an FEA (Finite Element Analysis) was required to comply with pressure vessel codes. With guidance from a heat exchanger expert who worked for one of our customers, I was able to simplify the FEA making it feasible to conduct the analysis in a day rather than weeks. In this case, a recently graduated engineer working with input from the VP of operations and an industry expert was able to effectively reduce cost of a product. In other examples, similar results can be achieved through collaboration with procurement, vendors, manufacturing engineering and sales.

Why Teamwork?

A complete understanding of what contributes to cost in a product lies in many different areas of expertise in an organization. The operations team understands what drives labor hours and how the quantity of part numbers reduces cost related to inventory management. Procurement understands which suppliers are the most cost effective. Quality understands which operations or suppliers have the best quality and therefore the lowest costs with respect to reworking items. Engineering, with input from other functions, can optimize the design to meet cost targets. Manufacturing engineering understands what drives cost from a manufacturing perspective and will contribute their expertise to the design.

When one of these functions tries to achieve cost targets without obtaining feedback from other functions, inevitably many opportunities for reducing cost are not considered in the final product. By working as a team, many more opportunities to reduce cost can be identified. Once identified, the team can then rank these opportunities by which cost reductions are the quickest or show the greatest benefit. Using such a ranking system, the team can focus on the most beneficial opportunities. Other cost reduction opportunities can be left for later or else incorporated in one of the other opportunities that have been ranked higher.

Setting Up a System that Promotes Teamwork

Since many cost reductions are tackled by single functions, very often no systems are in place to encourage these functions to work these efforts in teams. Implementation of the team approach is best started by using a champion in the business leadership team who brings all the necessary functions together and appoints a leader for cost reduction efforts. This leader could come from any function and it would be beneficial if this position is rotated through a different function every 6-12 months. The leader would be responsible for:

1. Forming a multi-functional team that is responsible for cost reduction.
2. Collecting all cost reduction ideas.
3. Assessing the benefit of cost reduction ideas.
4. Working with the team to determine which ideas should be given priority.
5. Assigning responsibility of a cost reduction initiative to an individual who is then responsible for the execution of the initiative.
6. Tracking progress of initiatives and projects currently underway.
7. Provide reports to business leadership detailing progress.

In a number of cases these initiatives will need to be formulated as projects where assignments to the project are performed with the help of business and functional leadership.

In Summary

In order to achieve consistent and substantial cost reductions, it is important to harness the knowledge and capability of the broader team. By doing this there is a greater probability that opportunities will not be overlooked and that a broader understanding of the various considerations is incorporated in cost reduction initiatives.