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Design-to-Cost: Definition & important points for buyers
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Design-to-cost in a nutshell:
Design-to-cost is a development method in which a predefined cost target represents the central design specification for a product. For purchasing, this means early involvement in the development process in order to identify and implement cost optimization potential as early as the design phase.
Example: An automotive supplier sets a design-to-cost target of 12 euros per unit for a new generation of windscreen wipers and achieves a cost reduction from 18 euros to 11.50 euros per unit through cooperation between development and purchasing by planning more cost-effective materials and optimized production processes as early as the development phase.
Contents
What is design-to-cost?
Design-to-cost (DtC) is a strategic approach to product development that focuses on the target costs of a product from the outset. All product requirements and functions are designed and optimized in such a way that they remain within a specified cost framework. The aim is to develop a marketable product that is both high-quality and cost-efficient without compromising on functionality.
Core elements of design-to-cost
Importance of design-to-cost in purchasing
In the procurement environment, design-to-cost enables purchasing to influence product design and the associated costs at an early stage. By actively participating, purchasing departments can suggest cost-effective materials, use supplier relationships and optimize production processes. This not only leads to direct cost savings, but also strengthens the company's competitive position.
Design-to-Cost: From traditional product development to cost-optimized design
Building on the theoretical foundation of design-to-cost, it becomes clear how crucial it is to consider costs early on in the development process. In practice, this approach enables companies to design products competitively and cost-efficiently without compromising on quality testing or functionality. In the face of rising cost pressure and increasing market dynamics, the transformation from traditional development processes to a cost-focused design is essential.
Old: Traditional product development
Traditional approach: In traditional product development, the focus is on functionality and design, while costs are only taken into account in later phases. Products are often developed without defining precise cost targets, which leads to unexpectedly high manufacturing costs. Typical tools such as subsequent product costing and iterative adjustments are time-consuming and inefficient. This approach can lead to budget overruns and extended time-to-market as costly design changes become necessary.
New: Strategic design-to-cost
Design-to-cost: The modern approach integrates cost targets into the development process right from the start. Through interdisciplinary cooperation between development, purchasing organization, production and purchasing controlling, products are designed in such a way that they meet defined cost targets. Innovative methods such as target costing and value analysis help to identify and realize cost potential at an early stage. This leads to an optimization of manufacturing and life cycle costs, shortens development times and increases competitiveness through price-optimized products.
Practical example: Electronics industry
A leading electronics manufacturer implemented design-to-cost in the development of a new smartphone. By involving the purchasing department at an early stage, cost-effective suppliers were selected for key components. Value analysis made it possible to identify features that offered little added value for customers and could therefore be removed. The result was a 20% reduction in manufacturing costs and a faster time to market of three months. The company was able to significantly increase its market share and increase profit per unit.
Conclusion on the design-to-cost strategy
Design-to-cost is an indispensable strategic tool for modern companies that enables systematic cost optimization as early as the development phase. Its success is largely based on the early integration of purchasing and close cooperation between all departments. By striking a balance between cost efficiency, quality and innovation, companies can sustainably strengthen their competitiveness while at the same time meeting increasing market requirements. Increasing digitalization and the focus on sustainability will further strengthen the importance of design-to-cost in the future.
