Knowledge-based Approach for Product Cost Optimization

By Emilia Maier

It is important for any manufacturing company to maintain an optimized product to survive in a cut throat competitive market. Every manufacturer tries to achieve a balance between producing products faster while keeping the manufacturing cost lower without affecting the quality.

Manufacturing costs are a significant driver for the success of a product in the marketplace. During new product development or product re-engineering these costs can be fundamentally influenced. Using the product cost management approach, product cost optimization focuses on costs as well as value to determine the best solution for the market.

Product cost optimization requires a holistic view on costs across the complete product realization value chain. Through effective product cost optimization, companies can create differentiated products, improve their capability for innovation, and consequently take greater strides towards high performance.

Product cost optimization teams are a partner for the departments and supplier which defines and influences the costs to get a functional and cost optimized layout and supply chain. For the identification of the optimization tasks they are working in cross-functional teams and use software-enabled methodologies that helps understand the cost implications of their design and sourcing decisions. A database with reference data, such as labor costs, materials, machines and manufacturing processes – at a single point provides consistent data to make calculations efficient and credible.

Typical results by using the product cost management approach

    • Cross-functional cost and value analysis in the entire product life cycle
    • Support in benchmark activities and achievement/improvement of target costs
    • Increased accuracy of costs calculations through real-time collaborative costing
    • Minimized risk and raised transparency for purchased parts through increased number of calculated parts for new vehicles from 50% to 70%
    • Identification of significant differences (16%) between the supplier price and the actual cost structure

Best‐in‐class companies adopt the product cost management approach by focusing on opportunities in product engineering, manufacturing engineering and industrial engineering to optimize their product costs. Read our whitepaper to gain insights on how renowned manufacturers from various industries analyze and optimize costs for manufactured goods during the design phase. It also shares the value of using a knowledge-based cost to negotiate and make process improvements with suppliers.

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This article first appeared on the Siemens Digital Industries Software blog at