Do not Ignore the Balloon Effect: Tip #2
Tip #2: Do Not Ignore The Balloon Effect
An analogy that best describes the constraints of the product development process is one of a balloon. If a balloon is pressed or squeezed in one place, the fixed volume of air is just displaced and the balloon deforms. Here is how this analogy relates to product development. A program manager or engineer might attempt to squeeze cost or time out of the product development process only to find that there are counter effects to these efforts. These counter effects could be increased schedule, lower quality, or mismatch of customer performance requirements. The product development process is the air in the balloon and the program constraints are the balloon holding the air. If the balloon is pressed too much, expect the balloon to pop! There are no free rides in product development.
- There is always a tradeoff between product cost, program schedule, and product features/scope that cannot be ignored without consequences. One objective cannot be changed with affecting the others. This is sometimes referred to as the Project Management Triangle in product development circles. The concept is that cost, schedule, and features are all program objectives that are connected and should be prioritized in a properly managed product development process. Sounds very familiar to the the balloon analogy, doesn’t it? The program objective that has the highest priority must not be compromised. The second program objective must be optimized based on the results of the highest program objective. Finally, the team has no control over the last program objective and it lands where it lands. Here is an example. If a team is developing a product that requires the lowest market price, then it is obvious that product cost is the highest priority objective. If the team requires a faster schedule, then either the cost must go up or product features must be dropped from the plan. In this case, the team would choose to drop product features since the product cost is the highest priority.
- Proper product development is a process that must be followed with the main objective of shipping products to customers and achieving “first customership.” The best product development teams follow this process to the letter and don’t attempt to skip steps in order to save money or speed up the schedule. This will only result in failure and a popped balloon.
- The cost of a part or product is driven by the complexity as well as the quantity produced. Some people ignore economies of scale and believe that pure negotiation or playing one supplier off of another will result in a part cost that is below market price. Economies of Scale is the economic principle that the cost of something will decrease as the purchased quantity increases. This makes sense in manufacturing since efficiency increases and raw material prices decrease as higher quantities are produced. The best process to follow to get the best price for a product or part is to get multiple quotations from suppliers in the same country. When these quotations are received, have a meeting to work through the details of the quotation and break out costs that are bucketed together in one number. Don’t try to use quotations or prices from other countries to negotiate as this is like comparing apples to oranges. Also remember that if you are able to negotiate what you believe is a “below market” price for your part or product, changes are high that this lower cost will be the result of skipped steps resulting in lower quality.
- The relationship between fabrication tooling cost and part cost is an interesting tradeoff that is typically overlooked. When determining the cost of a part, it is important to consider the cost of the tooling required to make the part. If a very low part cost is required, it is necessary not only to order a high quantity but also to invest in high-volume tooling to bring the cost of the product down. Here is the rule of thumb. If you need low tooling costs, then the part cost will be higher. If you need low part cost, then the tooling cost will be higher. Here is an example. If you only needed ten pieces of a part, it is very unlikely that a production tool would be made. If you needed ten thousand pieces of this part, there is no doubt that a production tool would be required. It would cost more per part to make ten pieces versus ten thousand but the tooling cost would be higher for ten thousand. Remember that if you push hard on the part price, changes are high that it will bulge out in the price of the production tooling.
Smart product development teams don’t ignore the balloon effect and understand that there are constraints that mandate that nothing comes for free.
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