Have your product costs been impacted by inflation over the last few years? Perhaps it’s time to do a deep dive review of your product costs for 2024 to see where you may be able to claw back some of those increases from previous years.
Inflation in durable goods has increased by 10.59% in 2021 and 9.54% in 2022 according to the U.S. Bureau of Labor Statistics. Although, the rate of inflation has moderated in 2023, prices are still expected to be up.
Is it truly possible to reduce your costs in 2024? Below are the top 5 areas where you should take a closer look to see if you can find savings that will have a significant impact on your bottom line.
- Component costs – Review your BOM and work with product engineering to see if there may be lower cost substitutes for any and all electrical and mechanical components. If this isn’t an area you review on a regular basis you may be missing part savings opportunities.
- Product design – Work with design engineering to evaluate whether a streamlined, cost-reduction focused product redesign or material change would be feasible.
- Manufacturing – Your supplier, through a DFM (Design for Manufacture) process, may be able to assist with ideas for cost reduction. By streamlining production processes and/or materials, you may be able to decrease overall production costs. It’s possible that your suppliers can create subassemblies or kits at a lower cost than if you did so internally.
- Supplier Selection – How often do you look at alternative quotes from competitive suppliers? It may be time to reassess your current supplier. Have you performed a formal evaluation of their cost increases over the past few years? Have they helped you minimize the impact of inflation over the last couple of years? Do they have the resources to assist you in improving yields and keeping a lid on cost increases? It may be time to bid out your current design to another supplier if your schedule permits and you have the contractual flexibility.
- Logistics – Often shipping, warehousing and other logistics costs can be reduced just by doing a thorough review of each step in the process. Ocean rates soared during and just after COVID. They have come down substantially … is your supplier giving your fair share of this decrease? If you have significant annual container volumes (>100 TEU’s), consult a shipping and logistics specialist to see if there are options that may be available to you at a lower cost.
If you lack the internal resources necessary to thoroughly evaluate these areas and reduce your product costs in 2024, you can turn to sourcing companies that can help you sort through your options. They will typically only need your current drawings and estimated annual volumes to provide their quote. Make sure that you select a sourcing company that has the resources in engineering, manufacturing, quality assurance and logistics that can provide the necessary expertise. And if you are sourcing overseas in Asia, you’ll want to make sure that your partner has a western presence in order to facilitate the overall process from the product design all the way to delivery at your dock.
