When margins come under pressure, manufacturers usually respond in a predictable way. Purchasing renegotiates with suppliers. Production attacks scrap and changeover time. Engineering is asked to find savings in existing products. Everyone works hard, and the result is a few per cent: real and worth having, but often far short of what is needed.
Meanwhile, decisions are being made about the next product that will set most of its manufacturing cost for years. Which material, which tolerances, how many parts, which joining method, whether a feature is formed or machined. These decisions are often made quickly, under schedule pressure, with little manufacturing input, and nobody with commercial responsibility reviews them until the product is in production and the cost is fixed.
This article explains the idea of committed cost, the future cost locked in by a decision before any money is spent, why design is where most product cost is decided, which design decisions carry the most cost, and how a small manufacturer or product business can bring cost knowledge into design while change is still cheap.
Two curves that move in opposite directions
Across a product’s development, two things change in opposite directions.
Committed cost rises steeply and early. Every design decision commits future spending: a material choice commits a process, a tolerance commits a machine and an inspection method, a part count commits purchasing, stock holding and assembly work. By the time a design is released, most of the product’s manufacturing cost has been decided, even though little has yet been spent.
Remaining influence falls as commitments accumulate. Before tooling is ordered, changes cost mainly design time. After tooling is made, the design is effectively fixed. Once production is stable and customers have approved the product, a change may require new tooling, retesting and customer re-approval, costs that often exceed the saving.
The result is a structural mismatch: at the point where the business has spent almost nothing, it has decided almost everything; at the point where it is spending heavily, it can change very little. A widely repeated rule of thumb holds that most of a product’s manufacturing cost is committed by the end of design. The exact share varies by industry and product and is not a measured constant, but the direction is well accepted, and it is the direction that matters for management.
Common misreadings
- Cost reduction is a production job. Production can influence the cost a design allows. It cannot remove the cost a design requires. A tolerance tighter than the function needs costs extra on every unit, for the life of the product.
- Value engineering after launch is the same as designing for cost. Changes after launch carry retesting, tooling changes and sometimes customer approval, which consume much of the saving and divert engineers from the next product.
- Design is the expensive phase to extend. Design is usually cheap in cash spent and expensive in commitment. Cutting it short to protect a launch date can be one of the most costly decisions a manufacturer makes, yet it is rarely treated as an investment decision.
- Designers know the cost consequences. Often they do not, through lack of feedback rather than ability. Designers optimise for what they are measured on: function, weight, appearance and schedule.
Design decisions are investment decisions
A useful shift is to treat significant design decisions as investment decisions with a long tail. A tolerance decision commits a machining operation, an inspection method, a scrap rate and a supplier capability, repeated on every unit for the product’s life. A decision to weld rather than bolt commits a process, a skill, a quality risk and a repair method. These are not drawing details. They are recurring financial commitments, made when they are easiest to change and least visible.
In many businesses, a few thousand dollars of discretionary spending requires approval, while a design decision committing hundreds of thousands of dollars of lifetime manufacturing cost needs only a drawing signature. Recognising that mismatch is the first step to fixing it.
Where the leverage sits
Three types of decision carry particularly large cost consequences.
Part count
Every part carries a purchase cost, stock holding, handling, an assembly step, a quality risk and a possible failure point. Reducing the number of parts reduces all of these at once, which is why combining parts usually saves more than negotiating lower prices for the same parts. Standardising fasteners and common components has a similar effect.
Tolerance and surface finish
Tolerance is the allowed variation in a dimension. Cost does not rise smoothly as tolerances tighten. It rises in steps, because at some point a tighter tolerance moves the part to a different process, machine or supplier. A designer who knows where those steps are can often meet the function at much lower cost. Surface finish behaves similarly. The key discipline is to trace each tight tolerance or special finish to a functional need.
Material and process pairing
Material choice determines which processes are available, and the process determines tooling, cycle time and achievable shapes. Choosing a material without considering the process it implies is common and expensive. Considering material and process together, often with input from the people or suppliers who will make the part, opens cheaper options.
Other decisions also matter: the joining method, assembly direction, how many different suppliers are needed, whether features can be made in one setup, and whether the design suits the volumes expected.
Four questions for every design review
Apply these at design reviews, not cost reviews:
- What does this decision commit, per unit and over the expected volume? A rough estimate is enough. The goal is visibility, not precision.
- What function requires it? For each tight tolerance, difficult feature or costly material, state the functional need it serves. Requirements that cannot be traced to function are candidates for relaxing.
- When does it become irreversible, and what would changing it cost after that? Knowing the point of no return sets the urgency.
- Who is commercially accountable for this decision? If nobody, the decision is being made without a commercial owner.
Give designers cost feedback
Designers make better cost decisions when they can see cost consequences in a form they can use. A simple cost guide, maintained with input from production and suppliers, can show relative costs for common choices. For example:
| Choice (illustrative) | Lower-cost option | Higher-cost option | Why the step occurs |
|---|---|---|---|
| Hole tolerance | Standard drilled hole | Reamed or bored precision hole | Extra operation and inspection |
| Bracket | Laser-cut and folded sheet | Machined from solid | Process and material change |
| Joining | Standard fasteners | Welding plus finishing | Skilled labour, distortion, inspection |
| Fasteners | One standard size | Several sizes and types | Purchasing, stock, assembly errors |
| Finish | As-supplied or standard coating | Special polish or plating | Extra process and supplier |
The guide does not replace engineering judgement. It shows where the cost steps are, so designers can ask whether the function really needs the more expensive option. Keep it current as processes and suppliers change.
Put manufacturing knowledge in the room
The most effective change is often simple: make sure someone who understands manufacturing cost takes part in design reviews, with the standing to challenge, not just comment. For a small business, that might be the production manager, an experienced machinist or fabricator, or a supplier who will make the parts. Input that arrives as a review comment after the design is settled is too late to influence and early enough only to be blamed.
Apply this in proportion. Not every drawing needs a commercial review. Focus on the decisions that commit the most cost over the product’s life.
What to do with products already in production
Committed cost is not entirely beyond reach once a product is in production, but changes need to be chosen carefully because each carries its own costs. A practical approach:
- Rank products by remaining volume and margin. A saving per unit matters most where many units are still to be made.
- Estimate the full cost of change: redesign, new or modified tooling, testing, documentation, customer approval and the risk of introducing new problems.
- Bundle changes. If a product must be revised anyway, for a new feature, a supplier change or a compliance update, add cost improvements to the same revision so retesting and approval are paid for once.
- Target the cost steps. Look for features where supplier quotes are high, scrap is concentrated or extra operations are needed. These often point to a specification that crosses a process step.
- Learn for the next product. Even when a change is not worth making now, record the lesson in the cost guide and design standards so the next design starts better.
The most valuable outcome of reviewing existing products is often not the saving on the current product but the improvement in how the next one is designed.
A worked example
This is an illustration. A small business designs a stainless steel mounting assembly for commercial food equipment. Expected sales are about 4,000 units a year for six years, around 24,000 units in total.
The first design has seven parts machined from solid bar, with tight tolerances applied to almost every face, four different fastener types, and welded and polished joints. The quoted manufacturing cost is about $86 a unit.
Before releasing the design, the owner holds a review with the production lead and the main fabrication supplier, using the four questions. Tracing tolerances to function shows that only the bore that mates with a shaft needs a tight tolerance. Surfaces that touch food must remain smooth and cleanable, a genuine functional and hygiene requirement, so that finish is kept. Other faces are hidden and can be left as cut.
The redesign uses three laser-cut and folded sheet parts, one fastener type, a tight tolerance only on the bore and fewer welds, with polishing kept on food-contact surfaces. The quoted cost falls to about $54 a unit.
| Measure (illustrative) | Original design | Revised design |
|---|---|---|
| Parts | 7 | 3 |
| Fastener types | 4 | 1 |
| Unit cost | $86 | $54 |
| Saving per unit | — | $32 |
| Saving over 24,000 units | — | $768,000 |
The review and redesign add about five weeks and roughly $19,000 in engineering time and prototypes. Had the same change been made two years after launch, only the remaining 16,000 units would benefit, worth about $512,000 before the costs of new tooling, retesting and customer re-approval, and engineering time would have been taken from other work.
How this applies to a small Australian business
Small manufacturers and product start-ups often outsource manufacturing, which makes early supplier input especially valuable:
- Ask suppliers to review concept drawings before you finalise designs. Many will point out cost steps they see every day.
- Request quotes on alternative designs at concept stage, not just on the final drawing.
- Trace every tight tolerance and special finish to a function.
- Count parts and fastener types, and challenge each one.
- Protect design time: a few extra weeks of design can be far cheaper than years of higher unit costs.
- Build a simple cost guide from your own quotes and production experience.
- Prototype early to test both function and manufacturability.
The articles on how much design to do before seeking quotes and notes on prototyping early cover related steps.
Signals worth watching
- Cost-reduction programmes delivering smaller savings each year, because what remains is committed in the design.
- Many engineering changes in the first year after launch.
- Supplier quotes coming in high on particular features, often a sign of a cost step.
- Design schedules compressed while launch dates hold.
- Scrap and rework concentrated on a few features where specifications exceed process capability.
- Manufacturing input arriving after designs are settled.
Common mistakes
- Leaving cost to production and purchasing after the design is fixed.
- Applying tight tolerances by default rather than by function.
- Choosing materials without considering processes.
- Cutting design time to protect a launch date without counting the cost.
- Giving designers no cost feedback.
- Including manufacturing input too late or without standing.
Frequently asked questions
Does designing for cost compromise quality? It should not. The aim is to meet every functional, safety and quality requirement at the lowest reasonable cost. Requirements that serve a function, such as cleanable surfaces on food equipment, stay.
Is this only relevant for high volumes? The effect is largest at high volumes, but even at modest volumes, unnecessary parts, tolerances and finishes add cost on every unit and slow production.
What if we do not have in-house manufacturing knowledge? Use your suppliers. Ask them where the cost lies in your design and how they would make it cheaper, and consider an independent review for significant products.
Questions to ask
- How much of our product cost is decided before we order tooling?
- When did a design decision last get a commercial review before it became irreversible?
- Do our designers see the cost consequences of their choices in time to act?
- Which of our specifications exist for a function, and which out of habit?
- Would we allow a few more weeks of design to reduce lifetime cost, and who decides?
- Who is commercially accountable for our design decisions?
Bringing it together
Most product cost is committed in design, long before it is spent. Cost-reduction programmes after launch can only work on what the design allows. Treat significant design decisions as investment decisions, focus on part count, tolerances and material-process pairing, ask what each decision commits and what function requires it, give designers practical cost feedback and bring manufacturing knowledge into design reviews with the standing to challenge. A slightly slower front end can buy years of lower cost.
Source: KEVOS notes. The proportion of cost committed in design is a general rule of thumb, not a measured constant. Examples and figures in this article are illustrations.
