Posted by: malstott | February 18, 2010

Cost versus Value

I recently took a trip to Ireland. No Blarney, I had the trip of a lifetime. Prior to leaving I spent hours looking for the best deals for flights, hotels, tours. I saved thousands of dollars by doing this. TripAdvisor, Expedia, Travelocity…used them all. However, in the midst of enjoying good stuff for cheap I made an error that cost me. I picked the cheap hotel for an extended hotel stay in Cork and discovered that it was NOT the hotel I had in mind. We moved to the lower rent district and suffered with a lumpy bed and frayed carpet and lousy food in the pub downstairs. (The Guinness was fine though!) What I missed was the value proposition. Money was saved but value suffered. The consequence was that we wasted money on food, had to pay for internet and drank a lot more to overcome our disappointment.

Cost savings should be a rigorous process in business. The success I’ve had is a direct result of objective comparison, meticulous analysis and aggressive negotiation. But there is one more critical part of successful cost savings. Calculating the value along with the cost is the not so secret ingredient. Can you relayout for fewer PCB layers? Can you use a thinner gauge of aluminum? Do we need the higher quality memory if the SW in your product will test for errors and retire out pages? Does the customer really value a stainless steel enclosure? Asking questions about the value of components and processes and pushing for the right level of value is the first step toward controlling cost. Competitive data and knowledge of best practices should be used to drive decisions.

A handful of skill is better than a bagful of gold. An Irish Saying….

Skill in cost management coupled with value engineering is worth two bags of gold.  An Alstott Saying….

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Responses

  1. Where was the value in going to Zala so early for FF. We burnt so much valuable time getting them over the line late. We should have staredt in Paderborn and then gone to Zala.

    I wonder if with hindsight you agree?

    • Richard, as in so many things, hindsight is 20/20! While I would not pull the trigger on that same path a second time, I also would not have stayed in Germany. If I could rewind the clock I would have started in Mexico or even ramped in a US facility and then moved when the design was settled. We spent a lot of money on plane tickets and expediting fees. Good example of of looking at the total cost of a decision.


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