ATOL, Veloscoot, SEB, etc… What do all these companies have in common? They are taking part in the reindustrialisation of France and have chosen to relocate to increase their margins, betting on the gains allowed by redesign at objective cost or Redesign-To-Cost.
How can Redesign-to-cost be used to reindustrialize France?
The Redesign-To-Cost approach is initiated by a manufacturer in response to a need to regain competitiveness on a product or range of products by reducing costs or increasing value. In this perspective, it can be a powerful lever for maintaining competitiveness for an industrial company relocating.
A key success factor of a relocation is the choice of a product and a positioning in range adapted to the local market. Manufacturers wanting to take the step of relocation find themselves faced with the question of how best to optimize their costs, while maintaining a perceived value of their products making them competitive in the local market.
This is where Redesign-To-Cost reconciles these two imperatives: whether this repositioning involves the creation of a new product or the redesign of an existing product, Redesign to Cost makes it possible to review the value allocation provided to the customer without affecting the profitability of the product.
What is the methodological approach of Redesign-To-Cost, what levers can it use and for what results on the competitiveness of the manufacturers who implement it?
This approach differs depending on the stage of product development at which the redesign process takes place.
The redesign begins with an essential first step in understanding the functions of the product and the associated technical content.
The functional approach allows rethinking functions and performance levels that create value for the end user, and associated costs.
Rethinking the functions of the product aims to adapt them to the exact need, but also to create them if necessary to meet the needs of the local market. This approach partially transfers cost savings on some functions or components to other functions that are more valuable to the end user. The increase in value for the customer may also justify an increase in price at iso margin.
More consistent cost targets can then be allocated to functions or subsets. This is a cost-performance trade-off arbitration phase. This approach is an iterative and collaborative process involving marketing (customer needs), R&D (technical response) and purchasing (cost optimization).
The result of this approach is a basis of ideas challenging the functions or technical content of the product, with the potential for gains or associated costs
Design to cost applied to eyewear manufacturing: successful relocation to France for ATOL
- Redesign of interchangeable eyeglass temples for upscaling
- Redesign of “zero screw” glasses making it possible to eliminate a majority of the 140 manual operations, essentially of welding
- Rationalisation and reorganisation of production
- Production cost reduced from $7 per mount to $5 per mount, at the same level as China
In an industrialisation phase that has already begun, the approach will aim less at challenging functionalities than at reducing costs, allowing an increase in margin at iso price.
An initial analysis will identify and structure the cost drivers: material, labour, technology, testing, quality.
Redesign-To-Cost’s approach will then aim to challenge these different cost drivers by: local resourcing, alternative supply chain schemes, automation of certain processes to reduce the impact of labour on product cost. Labour in particular is a major cost driver in countries hosting relocation. Redesign-To-Cost also consists of allocating this workforce to functions with higher added value.
Note that taking into account the hidden costs linked to low-cost countries: non-quality, transport, supply chain, lead times makes it possible to highlight the hidden gains linked to relocation: reduction of non-quality costs, optimised supply chain, local resourcing enabling better collaboration with suppliers. The result of Redesign to Cost’s approach is therefore a basis of ideas challenging mainly the cost drivers.
VELOSCOOT, manufacturer of electric bicycles, has decided to relocate to France with local resourcing
- Hidden transport costs from China making European suppliers more competitive
- Non-quality costs eliminated by better control of production: more precise tooling
- Reconquering the French market, with annual growth of 65% in 2011
Redesign ideas allow scenarios to be established according to the stage of the product development process.
In the industrialization or production start-up phase, a quick-wins scenario integrating ideas with lower effort and rapid ROI will be preferred. The levers in this case consist essentially of purchasing actions. The purchasing lever makes it possible to resource or challenge the current supplier’s cost levers, and to rethink the supply chain. A benchmark may also make it possible to readjust the cost/performance ratio of certain components. On the other hand, a product in the design phase will lend itself more to a transformation scenario that will allow a redesign both of the functions of the product but also of the production process. Change can go so far as to call into question the business model in order to respond to local market consumption habits: development of the sharing economy, personalisation, eco-consumption, healthy eating culture. Seb’s now famous Actifry deep fryer, for which IAC accompanied the redesign, is a brilliant example of product redesign that enabled the French manufacturer SEB to preserve its production equipment in France by responding to a real demand for light meals. As far as the production process is concerned, a transformation scenario will involve, for example, a modular approach, platforming consisting in sharing certain production stages or components that do not differentiate between different ranges, and delayed differentiation. This approach reconciles the need to reduce costs with the demand for customization. The returns on investments will serve as a trade-off between the different scenarios, in order to integrate or not the different ideas. In general, quick-wins scenarios allow a potential gain of 5% in the first year. Redesign-To-Cost can target 15-20% gains while a modular approach offers 20-30% potential gains.
Relocation also involves new investment, which requires optimising the associated costs to remain competitive.
The Redesign-To-Cost methodology is also transferable to the production apparatus: in order to optimize the Total Cost of Ownership, the redesign with objective factory cost makes it possible to dimension its production apparatus exactly as needed while remaining flexible and evolutionary. This allows value to be recreated by adapting to the French industrial context. The traditional plant design process (definition phase by an engineering firm – detail phase – then costing phase by detail of infrastructure costs) is redesigned to favour an objective cost approach. For that, it is necessary to carry out the costing with the subcontractors in a logic of co-design to the exact need and aim at a target factory cost. Plant re-vamping is another method to reduce investment costs, such as the extension of the existing plant or construction at height to increase production capacity and at the same time create synergies to optimize the new plant. The integration of new innovative processes from the plant of the future 4.0 such as additive manufacturing allows in the same way to take advantage of France’s technological advantages.
IAC’s expertise in the relocation of French industry for over 30 years.
IAC contributes to strengthening the French industrial fabric by supporting relocation projects. For the past 5 years, the firm has had more than 5 references of relocation projects successfully supported thanks to the implementation of its Redesign to Cost methodologies and its Purchasing expertise. Among these projects is the Redesign-To-Cost of a flagship household appliance product in baby food: co-design with a French partner to reduce by 2 the number of parts and result in a target cost to relocate part of the production in France with significant gains on quality and service. The firm also led a Redesign to Cost project on behalf of a world expert in electrical specialties, allowing to gain 25% of market share by reducing costs, and thus to avoid relocation to Tunisia.
IAC helps you to :
- Build business models and a product relocation strategy consistent with your economic challenges
- Mapping, optimising and making logistics flows more reliable
- Define and realize your product and plant Redesign projects
- Audit your operational practices and integrate pragmatic tools and methods to make you more efficient