To achieve today’s targets, a step-change in thinking is required, one that takes a completely fresh look at the sources of cost. Product Cost-Down (PCD 2.0), a next-generation approach, produces a multidimensional view that comprehensively examines the sources of cost. The secret to its success lies in its holistic approach, enabling companies to root out product cost in a sustainable way while maintaining high levels of customer satisfaction.
Uncertainty around demand and supply is an inescapable condition—and one that is growing. Industries far and wide—from manufacturing to consumer goods, from automotive to telecommunications—are all talking about becoming recession-proof. The desire is to generate free cash flows and profitability buffers to ensure they can weather whatever the market throws at them.
Typical product cost structure
Source: Oliver Wyman analysis
For example, automotive original equipment manufacturers (OEMs) are spending hundreds of billions of dollars on e-mobility transformation over the next five to ten years. This level of investment is not sustainable without fundamentally rethinking how further efficiencies can be achieved.
After decades of small, incremental improvements, the line of attack is to re-evaluate cost structures to identify step changes in efficiency. The search is on for big wins.
In this POV, we look at three main ways in which PCD 2.0 offers a different mindset and approach:
- Focusing on root causes across the value chain
- Leveraging in-depth technical methods
- Adopting agile processes to produce rapid results
Whether a company is facing a major industry disruption or economic volatility, PCD 2.0 represents a major opportunity for companies to unlock step changes in efficiency.