Design to Value

Design to Value

 

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. 

 

 

Eric Hiller exposes the biggest blunders leaders make when it comes to 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.

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%. Therefore, the leverage is huge. For example, if a company had a COGS of 80% and reduced it to 79%, they only saved 1% as a percent of sales. But, if the margin was 5%, reducing COGS of 1% equates to a 20% increase in margin. Executives might think design-to-value or product cost management transformations are “too expensive.” They are; they are too expensive NOT to do.

 

Key points in this article include:

  • Focusing on short term savings without a plan for long term Product Cost management 
  • Not believing cost avoidance is more important than cost savings
  • Thinking that a tool is the solution, not simply an enabler
  • Under investing in a separate team and capability building for the organization

 

Read the full article, The biggest mistakes executives make in design-to-value and product cost management, on Medium.com.

 

Umbrex is pleased to welcome Mukesh Jagota with JRCC Partners. Mukesh Jagota spent five years as a Senior Leader in the Consumer and Retail Practice at Strategy& (formerly, Booz & Co.). Mukesh was one of the firm’s key thought leaders in the area of Sales & Marketing. In particular, Mukesh has conducted numerous client projects and research in the areas of in organizational transformation, portfolio strategy, next-generation marketing and innovation capability building, insights & analytics, international strategy, CPG and retail trade effectiveness, digital strategy, and sales force effectiveness. Mukesh also led significant work across the firm’s Deals practice, including helping architect the largest ecommerce acquisition in history.

Prior to his time at Strategy&, Mukesh led a regional specialty retailer, tripling its size within three years, and was a finance professional (e.g., corporate finance consulting, investment banking, private equity). Since 2019, Mukesh has been Managing Partner at JRCC Partners, a boutique strategy consulting firm that counts multiple Fortune 500s as clients. Mukesh would be happy to collaborate on projects across the globe in the Consumer & Retail sectors or that focus on Deal (including due diligence) or Sales & Marketing related work.

Umbrex is pleased to welcome Christophe De Greift with NEXUSQUANTS. Christophe De Greift has 15 years of experience in management consulting, part of it at The Boston Consulting Group and more recently running his own consulting firm focused on business analytics. Christophe has led 75+ projects in Latin America and Europe and has particular expertise in marketing analytics and supply chain analytics in sectors such as media, finance, logistics, consumer goods, energy and mining.

He lives in Lima, Peru with his wife and two young children and will keep exploring Peru with them, as soon as lockdown ends.

Christophe is happy to collaborate in transforming data into business value, both remotely and in Latin America or Europe.

Umbrex is pleased to welcome Adrian Blake with Portrane House.  Adrian spent five years as a digital specialist at Partners in Performance, focusing on using digital tools to drive Operational Improvement.

Prior to PiP, Adrian led the Advertising Business Group of DTN in its turnaround for private equity investors, including serving as Publisher of The Progressive Farmer, the world’s biggest agricultural magazine.

He spent 6 years at McKinsey & Co., specializing in Media & Entertainment. He began his career in the Entertainment industry, leading global distribution of Saturday Night Live and Comedy Central.

He graduated from Harvard College and has an MBA from Wharton. He lives in Omaha, Nebraska with his wife and 3 children, where he plays tennis and leads an Irish traditional band. Adrian is happy to collaborate on projects involving digital media and operational improvement.