Category: COGS

Monday Quickie – What Happens When You Don’t Keep The End In Mind

3/11/2019

Recently our firm took on a project which offered an interesting perspective and remainder having to do with the importance of thinking long term and planning accordingly. When you’re developing a product, regardless of which phase of the development cycle you’re in, it’s crucial to always consider the DFM (design for manufacturability) side of things. Otherwise, you could end up in a situation like our customer did below.

Our customer had a novel approach to addressing a problem on the market which hadn’t been dealt with in years. The other companies and people in this space just keep doing the same thing over and over while accepting patient outcomes which at times were and still are mediocre. In here lies opportunity.

Our customer hired a design firm to develop a prototype based off their concept to address this patient problem. What came of this partnership with the design firm was an incredibly neat, novel and quite frankly cool technology. Plus it looked awesome! The design firm, at first glance, hit it out of the park. Well done, chaps.

The prototype was impressive. It was so impressive it even garnered a new round of funding, series B, for our client. All was good in the world. Right?

Wrong.

While the approach for this prototype was indeed cutting edge it failed to address a crucial area of the product development lifecycle – manufacturability. Our customer had a really cool product, and boy did it look cool in action, but unfortunately it couldn’t be commercialized due to its associated COGS (cost of goods sold) and manufacturing time per unit. Basically, what happened was our customer hired a design firm to develop a really cool looking product that couldn’t actually be manufactured because DFM hadn’t been taken into consideration.

This is akin to what happens in the automotive industry all the time. A really cool concept is developed, often times to allow a company to flex its technological muscles yet what ends up being produced and available to the masses is quite different. (as shown below with this example of Chevy Volt’s Hybrid, side by side)

Notice the different in the design elements and ergonomics. The concept looks stealth, sleek and modern. Almost like a Camaro. Who wouldn’t want to drive that car! Whereas the production vehicle is a dumbed down version, not nearly as cool looking, almost rather plain and forgettable. It’s now a commuter vehicle designed to do one thing, put on the miles and get you from point A to B.

So why does this happen, where concept and production product are two different things?

Often times the simplest explanation is that the cost (COGS) of building the concept to meet production volumes would be so high that it would far surpass the cost point which the product, or in this case, the vehicle needs to be sold at to be competitive on the market. No one is going to buy a non-luxury 4-door commuter car made by Chevy which costs $80,000 US. If the company kept to the original concept design and tried to manufacture that at high volumes that’s exactly what would happen. Few would be sold and the vehicle would tank in ratings and Chevy would lose money in the process. As a result, they dumb down the design and features to meet the needs of the target customer audience.

In the medical device industry things work much the same way with one slight difference. Cost of a product per unit is most often based on what a company can get reimbursement approvals for. If you’re developing a medical device that relies on reimbursement to make money it’s absolutely crucial your COGS per unit are below the rate in which you can get reimbursed for, otherwise you won’t make any money. A professor of mine back in college used to say (and do so with a flair of arrogance that was most fantastic), “It’s economics. You can’t spend more than you make. Duh”

Duh, indeed. So back to our story.

Our customer is now left with a really impressive paper weight. They can’t manufacturer it in its current state and do so at a price that would allow them to make money. They’ve spent an incredible amount of time and money to be in a position that doesn’t allow them to move forward and get a product to market.

When we were brought in to help the customer the story we learned along the way wasn’t unlike many others we’ve heard before. In fact, we see this all the time. Fortunately over a period of 6 months we were able to work with he customer to make some small design changes along with manufacturing process changes, in particular their test fixtures and work flow, to finally get to a point where the product could be ready for commercialization. What made this outcome come to fruition was the customer was very open to ideas and changes as this was critical to getting the product to a commercialized state.

Key Take Away:
If you’re developing a product, regardless of the industry or market you’re in, never take your eye of the importance of DFM (design for manufacturing). A novel, emerging technology that can’t be manufactured is basically a really expensive paper weight.

Action Item:
If you’re developing a product and are considering using a design firm or supplier to help you with that effort make sure you vet them to understand what their experience has been getting a product to market. Anyone can design something that looks cool. Designing something that can actually make its way to the market and ultimately the end user is another thing all together. Ask the supplier for examples of design work they’ve done which ultimately got to a full commercialized state. Once you have these details you can better determine if this company is the right fit for your needs.

It’s important to recognize there are plenty of times where a company needs design help and it’s purely for the purposes of having a concept, not for the purposes of having a product on the market. It’s important to understand the differences between the two and where your needs are with your own product.

Interested in learning more about the case study attached to this article? If so, click HERE.