Achieving Full-Cycle Cost Management
Companies tend to assume that a large percentage of a product’s costs are locked in by design — that little can be done to reduce costs once the 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?
To answer that, we studied the consumer-products division of Olympus Optical Co. Ltd. in Tokyo, Japan. In-depth field observations of the life cycle of the new Stylus Zoom camera helped provide a detailed understanding of how the company applies various cost-management techniques across a product’s life cycle. (See “About the Research.”) In particular, we investigated the level of costs that are designed in because that shapes the way a company manages costs across the product life cycle. If a significant portion of costs is designed in, we would expect to observe aggressive cost management predominantly in the design (and not the manufacturing) phase of the life cycle.
References (10)
1. The origin of this statistic is difficult to identify but it appears to derive from B.S. Blanchard, “Design and Manage to Life Cycle Cost” (Portland, Oregon: M/A Press, 1978).
2. R.S. Kaplan and A.A. Atkinson, “Advanced Management Accounting,” 3rd ed. (Upper Saddle River, NJ: Prentice Hall, 1998), 223; and C.T. Horngren, S.M. Datar and G. Foster, “Cost Accounting: A Managerial Emphasis,” 11th ed. (Upper Saddle River, New Jersey: Prentice Hall, 2002), 417–418.
