We can use value analysis and value engineering techniques to improve our product cost structure and ultimately our value proposition.  The analysis phase of this activity is called value analysis. The design phase of this activity is called value engineering.  We are a bit constrained during these activities since as we have a product already in existence. For example, a major tooling change may not be our most appropriate product adjustment due to the costs associated.  We have to work within the confines of the existing design and manufacturing methodology as well as customer expectation. Still it is an exercise that we must go through as the use of these techniques can stave off product or service “death” for some period. As long as we can maintain our margins, we can still produce the product or deliver the service. If we do not have competition in the market yet, we improve our profits. Even if we have competition in the market place, with these value improvement activities ongoing through the product lifecycle, we are better able to maintain our profit margins as we steadily reduce our product or service cost and associated price.

It may not seem obvious, but we can benefit from these exercises even if we do not have the cost pressures due to competition.  As we improve the value proposition we reduce any cost barrier to the customer for purchasing the product increasing the “take rate” for the product or service. The same can be true for competitive markets where the organization may have to use cost to attract or retain customers.

It is in our best interest to optimize the product cost from the start of the lifecycle, even during conception. However, all is not lost if that was not possible.  Even if we did spend time optimizing the design during the conception and development phase, there are ample opportunities to improve the product or service cost in any number of ways during the lifecycle. It should be clear the longer amount of time we spend optimizing the product or service margins, the better corporate stewards we are and the more probable the company will be profitable. We can also say that you can not “cost cut” your way to profitability as a long-term strategy. Generating new products and services is the other half of the equation for maintaining a profitable organization.