COGS, which stands for Cost of Goods Sold, is the direct costs incurred from bringing a new product to market. It includes everything from raw-materials and components costs, to design and engineering costs, to manufacturing and distribution costs. The objective, of course, is to minimize COGS while maximizing market value, since the larger the difference between the two, the greater the potential for ROI.
For this reason, driving down the cost of goods sold is a crucial aspect of bringing a profitable product to market. With this in mind, here are the five most important boxes to check.
1. “Reverse Engineer” According to Use-Case
In many ways, smart product development begins at the end and works its way backward. Without first starting with the end-user and end market in mind, it’s impossible to establish a robust product definition and use-case for guiding the process to get there. (In other words, you first need to know the destination you’re trying to reach in order to arrive there successfully.)
Taking a reverse-engineering approach to product development helps you map out the best, shortest, and most cost-effective path for delivering the product in question.
2. Identify Strategic Trade-Offs Related to Speed, Scope, and Scale
There’s much more to aligning the product development process with use-case in order to optimize it along a linear path. (That’s the easy part.) The hard part is reconciling these insights with considerations related to speed, scope, and scale of production. (These hold the key to identifying opportunities for strategic trade-offs related to sourcing costs, materials costs, labor costs, production costs, distribution costs, and more.)
At Pivot International, our one-source business model gives us extensive experience with and visibility into every aspect of product development. (Supply chain, design, engineering, manufacturing, and distribution.) We are an “end-to-end” partner with nearly fifty years of product development expertise across fourteen industries and numerous markets. (Including medical, industrial, and consumer.) This enables us to solve the “complex equation” of the larger product development picture and maximize savings to drive down COGS.
3. Dial-In Diversified Sourcing Solutions
Some of the COGS-reducing questions that need to be answered early in the product development process relate to sourcing and raw-materials costs. For example, does your partner have access to a well-vetted, highly diversified global sourcing network, including alternatives to China?
This is important for two reasons. One, by having a wide range of options to choose from, you get the most competitive price on components and raw materials. Second, it offers far greater levels of security against supply chain disruption. Even if you check every other box necessary for driving the cost of goods sold down, if you lose access to the components or materials you need, delays will occur and costs will rapidly mount. At Pivot, we rely on a high diversified sourcing network that spans three continents to securely and cost-effectively service domestic, European, and Asian markets.
4. Optimize Design for Manufacture
DFM (Design for Manufacturing) is a crucial component of reducing COGS. As the name suggests, DFM aims to optimize design for manufacture to ensure it can be cost-effectively produced at scale. When design is divorced from manufacturing considerations, you end up with a product that looks great and performs flawlessly but is unnecessarily expensive to produce. (Which drives COGS through the roof.) Very few partners bring in-house DFM expertise, and by definition, DFM needs to be in-house to integrate with all other aspects of product development seamlessly. At Pivot, our one-source model includes the world’s top DFM talent to help partners, like Zibrio, deliver award-winning innovations to market.
5. Aim for High Volume Production and Flexible Manufacturing
In almost all cases, the costs of manufacturing products at high volume are significantly less than the costs of small production runs. This means that to drive down COGS, you’ll need a proven partner with large-scale production capacity. But you’ll also need a partner with the flexibility to enable you to scale production to real-time market demand. At Pivot, we bring 320,000 square feet of manufacturing capability across three continents. Our many locations are equipped to handle high-volume production, along with flexible production runs for rapidly responding to surges or reductions in demand.
Many businesses miss opportunities to drive down COGS by not knowing which boxes to check when selecting a partner. At Pivot, our commitment to help you identify every opportunity for minimizing COGS in order to maximize your product’s market value and ROI.
If you’d like to learn even more about our strategies for helping you develop a successful product, contact us today for a no-cost consultation. Together, we’ll make your product vision a winning reality.