Innovations Successful cost reduction methodologies

World leading manufactures highlight tools and techniques for achieving major cost reduction

s more manufactures struggle with global markets, competition from ``low cost'' countries, and faltering home economies, the attention of many manufacturers has naturally turned to cost and waste reduction. Yet, while major quality and productivity benets are being generated in many companies through the adoption of ``lean'' and Six Sigma practices, even when successful these can only be a part of the solution. Manufacturing reality is that around 70 percent of the cost of any product is dictated by decisions made during the design and early manufacturing process development phases. Therefore, by far the most effective way to gain the levels of cost and quality performances sought by most companies, is too specically look at a product's design and its production from a cost and quality viewpoint preferably as early in the development process as possible. One approach that offers the ability to do just this is design for manufacture and assembly (DFMA). But, while this tool has been available for well over a decade, and has helped many manufacturers achieve signicant savings, the tendency is still for it to be used as a stand alone approach, and often only applied to one-off projects. However, in looking for ways to signicantly improve cost and quality competitiveness, and achieve ``lean design'', a number of the world's leading manufacturing companies are now employing structured cost reduction approaches, that integrate DFMA as a key component. Two very different, but highly successful strategies, which both utilize DFMA as a core tool, were highlighted at the 18th International Forum on Design for Manufacture and Assembly, hosted by Boothroyd and Dewhurst Inc.

Structured cost reduction at Hewlett-Packard

A systematic and structured methodology for assessing product cost improvement opportunities, based around traditional value-engineering and DFMA, has now been used successfully at Hewlett Packard (Compaq Computer Corp., and Digital Equipment Corporation) for a number of years. Crucially, by adopting a systematic method for looking at costs, not only has this yielded signicant cost improvement for individual products, but the process itself means that a cost database and benchmarks exist, the time necessary to analyze a product's cost can be reduced, and opportunities for cost reduction are not overlooked. As with most best practices, the cost reduction approach by Hewlett Packard involves considerable preparation, including the creation of an efcient database of all relevant data, which is used to form a ``base case''. Without the baseline data, it is often impossible to get to the root of why parts costs are the way they are and when they can be reduced. Careful checking for data errors is also a crucial step in establishing baseline data. Another key preparation is to identify the main product cost drivers while an obvious need for cost reduction, the reality is that many organizations do not know where most of the cost of a product occurs. Also, it is equally important to understand the overhead structure, as this can help to identify perverse incentives that may affect later decisions.

DOI 10.1108/02580540410527520

VOL. 20 NO. 4 2004, pp. 31-33, Emerald Group Publishing Limited, ISSN 0258-0543

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the `` Manufacturing reality is that around 70 percent of during cost of any product is dictated by decisions made the design and early manufacturing process development phases.

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From this preparation, the cost reduction team can then apply a number of techniques to lower product cost: J Redesigning using DFMA to reduce parts count, simplify assembly/test, and use lower cost parts offers the biggest potential for cost reduction, especially when initiated early in the design process. For instance, one study by Boothroyd Dewhurst that looked at 117 product development projects has shown average reductions for part count of 54 percent, part cost 52 percent, assembly cost 45 percent and material cost 32 percent by using DFMA early on in a project. J Reducing existing component costs by renegotiation, or sourcing through a different vendor, offers the fastest, least intrusive way to decrease product cost. However, this can only be done effectively when it is possible to establish what a part should cost. For custom parts or assemblies this can be difcult, but again DFMA can be used to calculate a cost goal for these parts. J Component substitution is an effective, and the second fastest, method for reducing product cost. The fact is that many products are over-specied and over-designed and it is usually possible to substitute lower cost parts of lower performance, lower tolerance, or lesser quality and still achieve the product requirements without sacricing quality control. However, this practice is reliant on understanding what customers really want, and ensuring that only robust substitutions are made. J Finally, de-featuring offering only the features that make economic sense is another fast method of lowering cost. Too often products incorporate features that companies believe are essential, yet in reality are rarely used by customers. This approach has proven that it can yield quick and important results for Hewlett Packard. For example, on one post new-product introduction project, the year following the product's launch, a ``value engineering'' team was able to reduce cost by over 13 percent. This was mainly as a result of component substitution, along with some redesign. On another project, which began prior to product introduction, projected product cost were reduced by nearly 39 percent, again primarily through component substitution. With a further project, where extensive compliance testing and agency certications limited the options for de-featuring and component substitution, the use of redesign helped to reduce costs by nearly 10 percent.

Digital manufacturing at Visteon

In looking to improve its competitiveness, Visteon Corporation, the world's second largest supplier of automotive systems, with $18.4 billion annual revenues, has become one of the leading ``tier 1'' adopters of digital manufacturing (DM). DM is now seen by many as a critical and emerging technology in which every individual manufacturing operation can be digitally modeled and validated. DM manages manufacturing process information; denes, optimizes and validates manufacturing processes; and supports effective collaboration across the organization by using full digital product, process and resource denitions. According to the consulting rm CIMdata, organizations using this technology can reduce lead-time to market by 30 percent, reduce the number of design changes by 65 percent and process planning time by 40 percent. Production throughput can be increased by 15 percent and overall production costs can be cut by 13 percent. As a key component of its strategy, Visteon has gradually integrated DFM/A with the DM process. By leveraging other tools and data in DM, such as manufacturing process planning

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information, CAD and visualization tools, the company has found that DFM/A can provide more value. Similarly, the results generated by DFM/A studies can also be shared with other DM activities, such as operations engineering analysis, 3D digital factory modeling and collaboration. For example, state-of-the-art DM tools and strong analytical know-how were combined effectively to build Visteon's rst digital factory for manufacturing next-generation twin sheet fuel tanks at two new regional assembly plants in North America. These tools were used for virtual product design validation, visualization and analysis of both plants in a 3D world, arranging facilities and streamlining material ow within the four-walls, evaluating push versus pull scheduling strategies and analyzing the performance of the operator-controlled lean assembly lines. DFM/A was applied to the twin sheet fuel tanks very early in the design stage to identify potential part consolidation opportunities and assembly issues. Most of the information used in DFM/A, such as planning data, CAD geometry and BOM, was shared by the other DM studies. The results of DFM/A analysis, such as virtual assembly process, cycle time estimates, and human interaction information were also shared with other DM analyses. The result of this approach was that the digital representation of the fuel tank plants increased communication between the program team members and addressed manufacturing feasibility issues at an early program stage to avoid last minute engineering changes. Additional analyses helped in optimizing plant layout, material handling labor, and equipment and assembly labor. Overall, by applying its DM approach, a total of $2 million of cost savings/avoidance was achieved for these two plants. Moreover, program launch quality and factory safety were signicantly improved, and the information and knowledge from this DM implementation were later reused in the design of manufacturing lines at three other plants with similar fuel tank products. Overall, Visteon is nding that by starting the product design stage with the aid of DFMA, followed by the application of other DM tools to generate and validate production processes before building the facility, the company is able to achieve an improved lean design that leads to less labor, less tooling and facility investment, less material usage, less inventory, and excellent product quality. Over the last few years, it claims that signicant cost savings/avoidance of about $30 million/year have been achieved by this DM strategy applied to 24 of its plants. Not surprising, Visteon's goal is to apply this approach to all major new programs in the next few years. The paper ``Structured cost reduction; value engineering by the numbers'' was written by David Meeker and F. James McWilliams, Hewlett Packard Company, Marlborough, MA, USA. The paper ``DFM/A as a part of digital manufacturing approach'' was written by Tim Zheng, Digital Manufacturing Manager, and Wan-San Chiu, Senior DFM/A Engineer, Visteon Corporation, USA. Both were presented at Boothroyd Dewhurst's 18th International Forum on DFMA, held in Newport, RI, USA (www.dfma.com).

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