Procurement Glossary
Design-to-Cost: Cost-oriented product development in Procurement
November 20, 2025
Design-to-cost is a strategic approach to product development in which cost targets are integrated into the development process right from the start. This method enables companies to develop cost-optimized solutions and sustainably reduce procurement costs as early as the design phase. Find out below what design-to-cost means, which methods are used and how this approach can be successfully implemented in the procurement strategy.
Key Facts
- Design-to-cost integrates cost targets into the early product development phase
- Up to 80% of product costs are determined in the design phase
- Cost reductions of 15-30% are possible through consistent application
- Close cooperation between development, Procurement and suppliers is required
- Early supplier integration reduces development times and costs
Contents
Definition: Design-to-Cost
Design-to-cost refers to a systematic approach to product development in which cost targets are defined as primary design criteria and consistently pursued.
Basic principles of design-to-cost
The approach is based on the early definition of target costs and their continuous monitoring throughout the entire development process. The following principles are applied:
- Cost targets as binding design parameters
- Iterative cost optimization in all development phases
- Multidisciplinary teamwork between development and Procurement
- Continuous market and supplier evaluation
Design-to-Cost vs. Cost-to-Design
In contrast to the traditional cost-to-design approach, where costs are only determined after development, design-to-cost places the cost targets at the beginning of the development process. This enables proactive cost control instead of reactive cost reduction measures.
Importance in strategic Procurement
For Procurement , design-to-cost opens up new opportunities for early supplier integration and value analysis. Close cooperation with development enables procurement strategies to be optimized as early as the concept phase.
Methods and procedures
The successful implementation of design-to-cost requires structured methods and clear processes that dovetail development and procurement.
Target Costing Integration
The application of target costing forms the methodological foundation. Target costs are derived from the market price and broken down to component and material level. A systematic cost driver analysis identifies the main factors influencing the total costs.
Early supplier integration
The early involvement of strategic suppliers enables a realistic cost assessment and innovative solutions. Joint workshops and regular design reviews ensure that cost targets and technical requirements are reconciled.
Continuous cost monitoring
Regular cost assessments at defined milestones ensure that targets are met. Should-costing analyses and market price comparisons validate the cost estimates and uncover optimization potential.
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Key figures for controlling design-to-cost
Effective key figures enable the measurement and control of design-to-cost success and create transparency regarding target achievement and optimization potential.
Cost target deviation
The percentage deviation between planned and actual costs shows the effectiveness of cost control. This key figure is measured continuously in all development phases and enables early corrective measures to be taken in the event of deviations from targets.
Time-to-market improvement
Design-to-cost can shorten development times through early supplier integration and reduced design iterations. Measuring the development cycle time compared to traditional approaches quantifies this benefit and supports ROI calculations.
Supplier integration rate
The proportion of suppliers involved in the early development phases measures the quality of implementation of the design-to-cost approach. A high ratio typically correlates with better cost results and more innovative solutions.
Risks, dependencies and countermeasures
The implementation of design-to-cost entails specific risks that can be minimized through appropriate measures and structured processes.
Quality compromises due to cost focus
An excessive focus on cost reduction can lead to a loss of quality, resulting in higher costs in the long term. Balanced evaluation criteria and defined quality standards ensure that cost targets are not achieved at the expense of product quality.
Supplier dependencies
Committing to certain suppliers at an early stage can limit flexibility and create dependencies. A diversified supplier base and regular market analyses reduce these risks. Structured price negotiations ensure competitive conditions in the long term.
Incomplete cost recording
Hidden costs or unconsidered cost drivers can lead to unrealistic targets. Comprehensive total cost accounting and regular cost validation using external benchmarks minimize this risk.
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Practical example
A car manufacturer implemented design-to-cost for the development of a new vehicle component with a cost target of 150 euros. Alternative materials and manufacturing processes were evaluated through early supplier workshops. The development teams worked closely with Procurement to continuously validate market prices and evaluate design alternatives. The result: the target costs were undercut by 8%, while the development time was reduced by 20%.
- Early definition of cost target and quality requirements
- Regular design reviews with integrated cost assessments
- Continuous market validation by purchasing team
Trends & developments around design-to-cost
Digitalization and new technologies are fundamentally changing the application of design-to-cost and opening up innovative possibilities for cost optimization.
AI-supported cost forecasts
Artificial intelligence is revolutionizing cost estimation through machine learning from historical data and market trends. Predictive analytics enable more precise cost forecasts in early development phases and significantly reduce planning uncertainties.
Digital twins and simulation
Virtual reality and digital prototyping tools enable cost-effective design iterations without physical prototypes. Simulation-based total cost of ownership analyses take life cycle costs and maintenance expenses into account as early as the design phase.
Sustainability-oriented cost analysis
Environmental and social costs are increasingly being integrated into design-to-cost approaches. Life Cycle Assessment (LCA) and carbon footprint evaluations influence material selection and supplier decisions, while regulatory requirements create new cost dimensions.
Conclusion
Design-to-cost represents a paradigmatic change in product development that transforms cost optimization from reactive to proactive. The early integration of cost targets into the development process enables sustainable cost reductions and shorter time-to-market cycles. Successful implementation requires close cooperation between development, Procurement and suppliers as well as structured processes and continuous monitoring. Companies that consistently apply design-to-cost create sustainable competitive advantages through cost-optimized product development.
FAQ
What distinguishes design-to-cost from traditional cost optimization?
Design-to-cost integrates cost targets into the development phase, whereas traditional approaches only optimize costs after product development. This enables fundamental design changes instead of superficial cost reductions and leads to more sustainable results.
How are realistic cost targets defined?
Cost targets are based on market analyses, competitive comparisons and customer willingness to pay. By calculating backwards from the target sales price and systematically evaluating components, well-founded targets are created that are regularly validated.
What role does Procurement play in the design-to-cost process?
Procurement acts as a link between development and suppliers and contributes market knowledge and cost transparency. Through early supplier evaluation and continuous price validation, it supports realistic cost planning and innovative solution finding.
How is quality ensured with cost-oriented development?
Quality standards are defined as non-negotiable minimum requirements and integrated into all evaluation criteria. Regular quality checks and supplier audits ensure that cost targets are not achieved at the expense of product quality.
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