The key to manufacturing standard cost reduction is to first identify the cost goals based on the pricing forecast and the company's business financial model. In other words, manufacturing cost reduction is a top-down process. Operations has little control over market pricing and therefore the process has to start with pricing assumptions. Then, based on the pricing forecast and the expected margins, goals can be set for manufacturing cost.

These goals can then be made reality for the business unit based on a manufacturing cost reduction plan that sets out the detailed tasks to be accomplished. Conversion costs must be in line with market expectations and the market is not controllable. The DCI model for manufacturing cost reduction uses the demand forecast as a given, and focuses on controlling the elements of cost that can be controlled:

Production cycle times	Supplier partnerships
Inventory levels	Outsourcing - sources and extent
Non-value added processes	Procurement and material acquisition costs
Factory Utilization rates	Waste Reduction
Reliability Improvement	Alternative material selection
Quality management and control	Logistics Costs
Warehousing efficiencies	Manufacturing Execution Systems

In highly competitive markets, achieving product cost goals the product of setting the right goals and dedicating the organizational resources necessary to achieve them. If your understanding of manufacturing cost is sufficient (Click to read about our simple manufacturing cost analysis software), then we can help to set out a plan and execute it. If the first step in understanding product cost needs work, we can help there as well.

Beyond that, we can show how improving reliability adds profit directly to the bottom line by reducing cost. Finding the weak links in a design prior to production launch is one very effective method of reducing manufacturing cost and is essential to the 3P process. “Using the process of Highly Accelerated Life Testing (HALT) can reduce time to market and increase the reliability of your product at the time of product launch”, says Mike Silverman, Managing Partner of Ops A La Carte Consulting and Owner of HALT and HASS Labs in Santa Clara California.