3 Minutes Inside Operations: Cost Reduction Starts with Rethinking the Product

Welcome to the next episode of 3 Minutes Inside Operations. In this episode, André Smaal explores one of the most overlooked drivers of cost reduction in manufacturing: the true cost embedded within your product. While many organisations focus on supplier negotiations, the real opportunity often sits elsewhere. Inside the design, complexity, and assumptions built into the Bill of Materials.

The Limit of Traditional Cost Reduction

Most cost reduction efforts start in procurement. Teams are asked to deliver annual savings through supplier negotiations, contract reviews, and price pressure. While this approach can generate incremental improvements, it rarely addresses the root of the cost structure.

In many manufacturing organisations, purchased components represent between twenty and sixty percent of total product cost. Yet the design, complexity, and necessity of those components often remain unchallenged. As a result, a large portion of cost is locked in by internal decisions rather than external pricing.

The Product Design Blind Spot in Cost Reduction

The most effective cost reduction programmes shift the focus from suppliers to the product itself. A manufacturer in the construction sector illustrates this clearly. The business had consistently targeted five to ten percent annual savings in purchased components. Negotiation delivered results, but did not fundamentally change the cost base.

The breakthrough came when the organisation adopted a cross functional approach. Engineering, procurement, manufacturing, quality, and sales were brought together to analyse the product in detail. Instead of working in silos, the team focused collectively on one question: where is cost embedded, and why.

A Structured Approach to Reducing Product Cost

The team conducted a full teardown of key products over several days. They analysed the Bill of Materials, reviewed actual component costs, and assessed labour content. This created full transparency on how cost was built into the product. The critical step was the challenge that followed. The team asked a set of fundamental questions:

• Does each component serve a necessary function
• Is the level of complexity justified
• Can the same outcome be achieved with a simpler design

To strengthen the analysis, the same process was applied to competitor products. This provided a benchmark for cost, design efficiency, and alternative approaches.

The Impact on Cost and Performance

This approach consistently delivered results beyond traditional cost reduction methods. Across multiple cases, organisations identified ten to twenty five percent reduction in Bill of Material cost. These were not theoretical savings. Within weeks, ideas were translated into actions, and within a few months, implemented.

Beyond cost, the benefits extended into operations. Simplified designs reduced complexity on the shop floor, improved quality, and made assembly more efficient. At the same time, involving multiple functions increased ownership and accelerated implementation.

Why Organisations Do Not Capture This Value

The primary barrier is not capability. It is focus. Products that have been in the market for years are rarely challenged at a fundamental level. Assumptions become embedded. Engineering capacity is directed towards new product development. Improvement opportunities remain visible, but not prioritised.

In one case, a product that had been in the market for more than twenty years was significantly redesigned through this approach. When asked why it had not been done earlier, the answer was straightforward. The opportunity had always been there. It had simply never been prioritised.

What This Means for Manufacturing Leaders

Cost is not only determined by supplier pricing or market conditions. It is largely shaped by internal decisions around design, specification, and complexity. For leadership teams facing margin pressure, this requires a shift in approach.

Cost reduction should not begin with negotiation. It should begin with a structured, cross functional challenge of the product. This means creating the time and alignment to question what has long been accepted, and ensuring that engineering, operations, and procurement work together to redesign for cost and performance.

If cost pressure is increasing, the starting point is clear. Bring your team together. Put your product at the centre of the discussion. Challenge every assumption built into its design. Because the most significant cost reduction opportunity is often not external. It is already embedded within your product, waiting to be unlocked.