Do you know what your products really cost?
Creating a transparent view of your products’ total cost is a simple exercise that can have a significant impact on your bottom line. In a market where customers increasingly push suppliers on price, it becomes essential for companies to monitor and assess product cost structures continuously to protect margins.
Start with a transparent overview
A detailed cost breakdown quickly reveals which components carry the greatest weight in the total cost of a product. In most cases, the most expensive component is the best place to start, as it often holds the largest potential for savings.
For many products, labour time also represents a substantial share of the total cost. Here, methods such as Lean and agile approaches can help streamline workflows. Standardising components across products may also unlock efficiencies, enabling reuse and reducing complexity.
In practice, several strategies can reduce product costs, some more long-term than others.
Engage your suppliers
With a clear view of the most costly components in the bill of materials, companies should enter structured discussions with suppliers. Cost reductions can be achieved through component redesigns, alternative components (form, fit and function), or direct price negotiations. It is also worth exploring the supplier market to identify alternative manufacturers who can deliver the same component at a lower price while meeting your quality and compliance requirements.
Optimise the product itself
Cost-out is not only about negotiating prices. It is equally about improving the product. For example, one company reduced costs by replacing two batteries with one, without compromising performance or product lifetime. This resulted in a saving of 1,25 DKK per unit. With an annual production of 300,000 units, the company achieved a yearly saving of 375,000 DKK with no negative impact on customer experience.
What can you expect?
Our experience shows that companies can typically realise 5–20% cost reductions by maintaining a structured, ongoing focus on product costs. Over time, cost-out becomes a natural part of the organisation’s processes, contributing continuous savings and, in some cases, even product improvements. These savings strengthen both the bottom line and the company’s competitiveness.
In rare cases, companies have even used cost analyses to justify raising sales prices — successfully — backed by solid documentation.
Want to know more?
Ready to take the next step?
At kaastrup|andersen, we focus on creating transparency and enabling fact-based decisions. Whether you need a full cost-out review of your products, optimisation of your supply chain, benefit realisation, or workflow improvements, we tailor our approach to your company’s needs. Our consultants bring deep experience from some of Denmark’s largest organisations across multiple industries. We can lead the process or equip your teams with the tools and competencies to continue working with continuous improvements.
