Eric Hiller shares an article on the top mistakes made in product cost management and design to value.
Product cost management (PCM) and design-to-value (DtV) are two areas in companies capable of delivering the greatest of impact, but are sadly prone to the biggest blunders by leadership.
Eric A. Hiller, the managing partner of Hiller Associates and a specialist in product development and procurement, has unveiled some of the crucial errors that even the elite executives tend to commit in their PCM and DtV journeys.
Trying to save one’s way to growth
As great as product cost management and some of its sub disciplines like should-costing are at increasing your profit, but they will not grow your top line. To do that you’re going to need to focus on design-to-value. Make sure that you understand both the benefits and the limitations of these techniques.
Not understanding the massive leverage of COGS savings on margin
Cost of goods sold (COGS) is almost always the largest expense on the income statement of a product company. Often it is 70 to 90% of each dollar of revenue. People think of cost reductions in terms of big percentages (e.g. reducing product cost by 50%). That is one of the things that often scares people off from attempting such a transformation period, however you do not need to save massive percentages on cost of goods sold to meaningfully impact the bottom line People forget that margins at product companies are often thin, often less than 10%.
Key points covered include:
- Cost of goods sold (COGS)
- Cost avoidance
- Under investing
Read the full article, Eric A. Hiller Reviews Top Mistakes Made by Executive Champions in Product Cost Management and DtV, on Medium.