An Introduction to Cost in Engineering
Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.
A.1 Introduction
To understand this in terms of cost and engineering, let us for now put motorsport, racing and cars to one side, to focus on something simpler.
Consider a hoodie, clothing that most people wear regularly. Consider different aspects, or design choices:
Should it have front pockets or not?
Should it have a front zipper, or be a pull over hoodie?
Should it have a loose, fitted or slim fit?
What materials should be used - synthetic, natural, mix?
What colours and/or patterns should be on offer? Should there be reflective prints on the hoodie, for use at night?
Should you be able to tighten down the hood against your head with drawstrings? Should there be any additional toggles on these strings, or print? Should they match the hoodie colour?
Should there be fur around the hood?
Should there be additional lining for warmth? Should this be removable to use the hoodie on warmer days?
This sample of questions exists for a simple hoodie. We probably do not think about these when shopping, and just pick an item that we like. These though are the questions that product developers are thinking about, when developing a product that they want to attract you to buy.
Figure 1 shows an example of some differences between two similarly priced hoodies. Differences include the size of the pockets, length of the zips, and the drawstring types and accessories. The red hoodie has larger pockets, but simpler drawstrings and a shorter zip, compared to the grey/brown one.
Think about this in terms of cost; larger pockets consume more material and take some more time to sew in. More complex drawstrings and a longer zip also cost more. Note that the different hoodies cost the same to buy, but the producers dedicated different amounts of money to different areas of their product.
Figure 1 Example of differences between two hoodies
A.2 Resolving the Conundrum
In trying to answer these questions there are two things to consider:
1) What does the customer want?
This is the critical starting point, as a product that does not meet customer expectations cannot be sold.
A smart hoodie will likely be in a single colour, with natural fibres that produce little lint. A cheaper hoodie might be in synthetic fibres, without hood adjustment. One aimed at younger people might have prints and drawstrings in a contrasting colour to the main fabric material. One aimed at joggers might have a sweat wicking lining and reflective tape on the back.
2) What is the implication?
Any decision will have a consequence. We are mainly concerned with the engineering consequences and their ramifications on cost.
Adding pockets to the hoodie means more sewing and cutting operations are needed, and more equipment will be needed for that. If patterns/logos are sewn into the fabric, then a machine that can do this will be required. If the sewing thread colour changes with main fabric colour, then having more variation will imply more complexity; more equipment, or more expensive equipment, able to deal with this complexity may be required. This may also mean more shop floor space or specialized maintenance staff may be required.
If different hoodies are being produced, then there is more product variation / complexity to manage, more stock to produce, ship and store in separately identified boxes, increasing costs further.
If the item is a budget hoodie, the number of variants may itself be a cost issue and the decision might be to limit the design to a few popular solid colours. And so on.
A.3 Tying it all together
How do these two points relate? Customers will only be willing to spend a certain amount on a product. This sets a selling price limit. Allowing an organizational profit, we can work back to a piece cost, or a maximum we need to develop our product to. In this way this limit is set by:
piece cost = selling price – profit
such that the item cost is set by what the market is willing to spend. This piece cost needs to be distributed across the whole product i.e. the hood, drawstrings, print, pockets etc. (with each component having a range of possible options, with their own implications on engineering and cost). Other cost factors such as manufacturing location, distribution and overheads also need to be considered!
A.4 Conclusion
This range of options and implications is true back in the automotive and motorsport world. Customers want certain features; Touch screens, air conditioning, fuel economy, great sound, eye catching design, leather seats etc. Achieving these to a cost is what engineers do. Separating cost from engineering (design, manufacturing etc.) is fundamentally flawed. A cheap product that falls short on feature will not sell. A super capable product which is too expensive is uncompetitive. This also occurs in motorsport; there is a budget (maximum cost) that needs to be used to get the best performance increase per lap (customer). Furthermore, specific setups and solutions may be needed for different team drivers (internal customers).
Missing the implications for specific design decisions in terms of cost, manufacturing and business case is a mistake that students do within Formula SAE. These notes will hopefully help you to put the customer at the centre of the design process and prevent the customer’s requirements (including cost!) from being an afterthought.
Thus, the situation rings true: perfection is achieved when nothing more can be taken away, when the right balance of cost and engineering solutions is achieved, when the Goldilocks Solution is found.
B Product Defining Inputs – Customer Requirements Overview
In “Introduction to Cost Engineering” we saw that when designing a product, multiple options are possible; indeed, we recognize this fundamental, from the different products we look to purchase in our daily life.
How do we strike a perfect balance? Three key inputs are required to be able to define the customer requirements (what a customer wants) that need to be considered when designing/developing a product. These 3 key attributes are:
1. Micro Attributes
Understand who customers are.
Understand what customers want.
Understand how much are they willing to spend.
2. Macro Attributes
Understand the volume (how many do they want and when)
Understand location (where a customer is and where a product will be used)
Understand product positioning – product offer v.s. competition.
3. Company Attributes (internal customer)
Understand how company values impact the product solution.
Whilst Macro and Micro Attributes define business/product targets (where to go) Company Attributes define values and strategic aims (how to get there). Separate sections will describe these attributes in some more detail.
It is only once this information is collected, that a clear definition/function of what a product must do, can be generated. It is only with this information that a product can be developed that fulfills customer needs.
In motorsport, the ‘customer’ is the circuit itself, and its characteristics define the attributes - fast straights and corners, tight slow corners, off road track, country roads, mud, ice, number of races to run per engine, team budget etc.
In the automotive world, typical attributes include number of people to be transported, location, amount of luggage/cargo to be carried, premium features required, purchase cost limitations, sustainability concerns etc.
This sort of information is collected through surveys, interviews with potential customers, product trials, historical data and so on. This is difficult or impossible within FSAE.
My proposal to teams is to ‘credibly invent’ the data and use this as a basis for decisions taken throughout the year, and against which discussions are held during the static events. Credible inventing means proposing micro, macro and company attributes that make sense, and account for the real-world budget the team has. If you say your company is all for sustainability, but then your car is full of non-recyclable materials, then there is something not quite right. If you say you are aiming at premium customers, but you have a wooden steering wheel with splinters on it, then there is something not quite right.
Notably, a feature walk or different products may be needed to cover customer, price and feature bandwidth, which in itself brings its complexity.
Ultimately, note that people purchase products for any of three reasons:
To satisfy basic needs (a bicycle to travel to destinations).
To solve problems (a car, to travel quickly to destinations).
To make themselves feel good (a premium luxury car).
A properly engineered product will meet these reasons, as applicable to the specific product, and based on the input garnered from the attributes.
C Product Defining Inputs – Micro Attributes
C.1 Introduction to Micro Attributes
Micro Attributes capture customer requirements i.e. what the customer wants. This information must be collected with additional information to understand and describe the customer. This is critical as different customers may have different requirements; say younger people may only afford cheaper items compared to working adults.
Thus, Micro Attributes define who the customer is, and what they want. These customer requirements must be understood both in terms of feature/function but also in terms of a measurable/value (e.g. low cost, of less than £10).
C.2 Micro Attributes – Customer Requirements
Some customer requirements to be understood for product development include:
1. Price & Cost of Ownership
This details how much customers are willing to spend on the product (how much will they pay for the functionality they want).
Lifetime costs also need to be considered – cost to maintain, run and dispose of a product.
Cost information is crucial to delivering a salable product. Engineering must deliver the required features for the required cost.
2. Function/Feature
This relates to the rationale of why a customer would buy your product. What requirements/features/function/capabilities do they want?
Again, this is valid both at time of purchase and during use, maintenance and disposal.
The location/environment where the product is to be used also needs to be understood. This informs what the product must do, what environment and use cases it must survive, and what legal requirements may be imposed.
3. Product quality – 3 different types:
Technical quality – whether a product meets a set specification. Say repeatedly filling a one-litre bottle with water.
Service quality – relates to organization and customer interaction. The accuracy of product delivered, shipping quality (damage etc.), ease of after-sales, but also staff courteousness, responsiveness and accessibility.
Perceived Quality – visual perception. Are luxurious materials used? Is the fit and finish of a high level? Do certain materials just look like metal or are they also cold to touch?
4. Delivery Time
This is the time between a customer placing and receiving an order. Compare websites with next day delivery to the delivery of new cars.
5. Availability
Is the product in stock or does it need to be manufactured? A bakery can have freshly baked bread to take instantly, but not custom cakes. A bakery can make fresh bread to order, and have ready-made cakes, customized in a few minutes.
6. Variety / product range
This relates to the different products on offer – bakeries have different products and people may buy different items on different days. Range may also include products not made by your company (car accessories, or a furniture company partnering with a mattress or upholstery company.
7. Customization.
This deals with allowing customers to tune the product to their liking. The level of customization needs to be defined (none / select options / any option). The level of customization is linked with delivery time. Less customization usually implies a shorter delivery time.
To achieve the range of possible customer requirements and expectations, the product offering can include different options/packs (a feature walk) or different products to cater for different customer wants. A typical example is car manufacturers, selling a range of products (SUVs, saloons etc.) and each product has a range of variants and options.
Furthermore, the engineering solution must be driven by the requirements e.g.: an engineering solution might be low weight in a city car for improved MPG, whilst in a sports car it improves performance. Performance can also be achieved with more power, which might mean more weight, whilst better MPG can be obtained with hybridization, which increases cost. Never blindly assume an engineering solution without considering overall customer requirements.
C.3 Micro Attributes – Defining the Customer
Different customers may have different requirements. Men and women may value different things in a product. Younger customers may have different design preferences compared to older generations.
To understand who the customer is, we can look at specific key areas summarized below. These will be described in more detail in a separate section.
Key Area Description
| Key Area | Description |
|---|---|
| Demographics | Age/capability, gender, race/ethnicity, marital status, etc. |
| Socioeconomic | Occupation / income / cash-flow, educational level, etc. |
| Geographic | Location, region, country. |
| Geodemographics | Combined geographic and demographic. |
| Brand Affinity | Awareness and loyalty to a brand. |
| Psychographics | Lifestyle attributes. |
| Generation | Generation specific behaviours. |
| Purchasing Behaviours | Impulse or considered purchase. |
Armed with knowledge on who the customers are, and what they want, we can segment the overall market into smaller, individual segments (grouped by any of the Micro Attributes) with specific characteristics, and product requirements.
This segmentation allows product tailoring to the individual customer needs, and the identification of the parts of the whole market that have the greatest sales/volume potential. A company cannot offer features for everyone – it must focus on key customers. Ultimately, only certain products will be responsible for the bulk of the income.
Segmentation is about finding the ideal customer; someone who gets their exact needs met by the product on offer and being able to describe and understand that customer.
D Product Defining Inputs – Macro Attributes
D.1 Introduction to Macro Attributes
Micro Attributes define customer requirements, and so product objectives to fulfill.
Macro Attributes describe where the customers are, how many they are, how much they will order, and how variable these orders could be.
D.2 Macro Attributes
Macro attributes describe customer requirements at a high level, characterizing:
1. Demand Volume – the quantity that can be sold
Consider the current market size, future potential (growing or contracting), and potential market share.
Volume is crucial to building a business case and selecting engineering solutions since it affects manufacturing method, and corresponding labour, floor space and facility, part subcontracting potential etc. Engineering design and manufacturing solutions differ between mass production and low volume manufacturing.
2. Demand Variability – the seasonality or varying product demand
An additional consideration with volume is variability. Production may be seasonal (such as Christmas trees), fairly stable (such as bread) or demand may vary (sports clothing is sold all year round but there is more demand around spring/summer). Once again, this impacts engineering design and production solutions.
3. Location
Different locations can impact the solution or range of requirements. Compare a mobile phone to be used by typical people, in cities or rural areas, to a satellite phone designed for remote expeditions at the poles. The battery life, weather conditions and the gloves the user might have to interact with the device are completely different.
Customers in urban areas might be able to reach a showroom or shop – those in a rural setting might not. This impacts how your organization can sell but also service/support/repair products for customers. Will you reach customers directly or use distributors/shops? Do they have DIY capabilities or do they expect support?
Different solutions may be needed by country and region, which may also have differing legal requirements.
Alternative revenue streams, typically add-ons such as accessories may be different in demand and type in different areas. Affluent areas may require branded accessories (premium mats and finishers in a car); rural regions may require traveling related accessories (tow hooks and trailers, storage boxes).
4. Market Position
This is about understanding what competition already exists (Benchmark), their selling price and features, and also what other products your company has.
Positioning is about how your product will compare against all other products and why customers should part with their money to buy yours. Tailoring the position against competitors and customer requirements is critical to accurately define a product.
Is it better (Leader), similar (Matched) or worse (Follower) compared to the competition? How is this positioning achieved?
What features does it have? Is it more/better featured compared to other products?
Cheaper cost? Higher cost and better-perceived quality?
Does it have a Unique Selling Point that differentiates?
E Product Defining Inputs – Company Attributes
Company Attributes support the brand and company image, that customers can relate to (as these will mimic what customers find important), and act as additional requirements the products need to meet; we can consider this attribute as an internal customer, as opposed to external customers who will purchase/use the product. This attribute includes:
Cost Financials
Profitability and return on investment targets, required of the product.
Company Values, including
Sourcing from sustainable sources with traceability
Sourcing without child or forced labour
Sourcing from small enterprises etc.
Company position: being leaders for innovation, quality, value for money, specific product capability, speed of delivery etc. Think of European cars Audi A3, VW Golf, Seat Leon. They are built on the same platform, share a lot of common parts, yet the products and brands stand for different values.
Company Strategic Aims
Develop in 1 country v.s. global footprint
Corporate Social Responsibility (CSR)
Quality Certificates & Accreditations
Strategy and market position, built around products (Flexibility/low volume vs. volume/functional product; limited range vs. wide range/innovative products etc.).
These Company Attributes will underpin product development, informing the result through the strategic direction the business wishes to pursue. Company Attributes define an overarching approach to how things are developed, rather than impacting the detailed development work of one specific product. This could include:
Recycled materials to be used across multiple products.
Company Position: Apple designs premium, beautiful mobile phones.
Quality and Management systems used across different programmes etc.
Some other sustainability examples include:
https://www.volvocars.com/uk/about/our-company/this-is-volvo-cars/sustainability
https://www.landrover.co.uk/explore-land-rover/responsibility/index.html
F Customer Defining Areas
Finally, this section will briefly discuss areas that can be analyzed to define potential customers. These will inform the engineering decisions that need to be taken to achieve a successful product.
Demographics
This is one of the most basic ways of describing customers, typically including such descriptors as age (including physical capability), gender, race/ethnicity, household composition, marital status, region of residence.
Generation
This area includes generation-specific behaviours which may impact on the product (millennials, X, Y, Z etc.).
Socioeconomic
This relates to occupation, income, cash-flow, educational level, and memberships. Cost of ownership can also be included here (how much is the customer willing to spend to use or maintain the product). This is not an upfront cost but is an important factor to be considered, particularly as it may impact the satisfaction in owning or using the product, and could be a cost that is ‘discovered’ once owned, as opposed to reading off a specification brochure.
As it is difficult to describe this attribute (as opposed to Male/Female, Single/Married etc.) we can look at standard classification systems used within industry. One such system is the NRS Social Grade system shown below [https://en.wikipedia.org/wiki/NRS_social_grade].
| Social Grade |
Social Status | Occupation |
|---|---|---|
| A | Upper Class | Higher managerial, administrative, or professional |
| B | Middle Class | Intermediate managerial, administrative, or professional |
| C1 | Lower Middle Class | Supervisory, clerical, junior managerial, administrative, or professional |
| C2 | Skilled Working Class | Skilled manual labor |
| D | Working Class | Semi- and unskilled manual labor |
| E | Subsistence Class | Unemployed, seasonal, or casual |
Geographic
The key inputs sought here are related to location. Where is the end-user located, what retailers will exist, how can customers be reached and supported, what region of the world are we in, what environment will the product be used in?
Potential customers are in different local, state, regional or national areas and each may have differences varying from legal requirements to product preferences. Geographic information is crucial to identify the correct location for a retail store or maintenance depot, and understand the facility with which these can be reached. Climate is another vital factor to understand, as different environmental conditions will require specific solutions. These will all impact how a product is designed and engineered.
Geodemographics
Differences in other attributes may also be present across different Geographic locations. Thus, Geodemographics combines geographic and demographic areas, which may cluster into identifiable groups. There are again some industry-standard classification systems such as ACORN and MOSAIC.
Brand Affinity
Awareness and loyalty to brands is another area to understand and impacts how a brand must be presented. Ideally, we want returning customers over new (conquest) customers since they need less advertising/resourcing to bring to the brand. A good example is Skoda; their slogan is “Simply Clever” but in China where older businesses are more valued, their slogan is changed to “Since 1895” - see How Skoda cracked the Chinese market | Autocar.
Psychographics
Also known as lifestyle attributes, these relate to life stages, personality, attitudes (also towards the environment), emotions, interests/hobbies, voting behaviour, lifestyle issues, values and beliefs.
Typical Life Stages include the following categories:
Pre-Family or No Family – people under the age of 45 who are not parents.
Family – people of any age with at least one child under age 16 still at home.
Third Age – people aged under 45 through 64 with no children under age 16 living at home.
Retired – people over the age of 65 with no children under the age of 16 still living at home.
The desire for status and enhanced appearance, are examples of psychographic variables, influencing customers’ purchasing decisions where, say, luxury items would appeal to an individual’s desire for status symbols. The Company Values Attribute needs to match well with the customers’ psychographics.
Purchasing Behaviours
This area covers how customers approach the purchase – is it an impulse purchase or does it follow careful analysis before purchase (think of chocolates placed at a supermarket checkout).
G Conclusion
Cost is not separate from engineering; indeed it must go hand in hand with it. Good engineering practice goes beyond the merely technical, and encompasses knowledge of customers, supply chain, society, environmental impact etc.
Engineering is about finding the Goldilocks Solution. This is the solution that is the best compromise, or is the best solution which is not necessarily apparent, but is identified from careful evaluation, considering all factors including cost.
There are many examples of this, but a good example and summary of this can be seen here: