Achieving Full-Cycle Cost Management

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Companies tend to assume that little can be done to reduce product costs once a design is set. This belief has shaped many cost-management programs across diverse products' life cycles. Because of it, firms will often focus on cost reduction during the design phase and cost containment during manufacturing. But are much of a product's costs truly locked in during design?

Recent research suggests otherwise. In an extensive field study at the consumer-products division of Olympus Optical Co. Ltd., the authors found that the company is able to obtain significant cost reductions in manufacturing. Indeed, the research has demonstrated that costs can be aggressively managed throughout the product life cycle. Furthermore, the authors found that Olympus Optical applies various cost-management techniques in an integrated manner with the outputs of some techniques acting as inputs to others, thereby increasing the program's overall effectiveness. The observations suggest that companies competing aggressively on cost might consider adopting some form of an integrated cost-management program that spans the entire product life cycle.

Robin Cooper is a professor in the practice of cost management at the Goizueta Business School, Emory University. Regine Slagmulder is an associate professor of accounting and control at INSEAD. They can be reached at Robin_Cooper@bus.emory.edu and regine.slagmulder@insead.edu.

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