Staying Ahead of the Competition: From Cost Control to Success

In today’s business environment, effective cost management is critical for sustaining profitability and competitiveness. Approximately 80% of costs are fixed during the product development stage creating challenges for procurement or manufacturing teams to remove significant costs further in the production cycle.  

Strategic cost management holds significant importance across various domains, including product development, the manufacturing process and supply chain management. As Sam Walton, founder of Walmart and Sam’s Club said, "Control your expenses better than your competition. This is where you can always find the competitive advantage." 

Product development and pricing strategies are pivotal in determining a product’s competitiveness in the market. At IKEA pricing is the foundation of their product development. Executives have been quoted saying, "We design the price tag first, and then develop the product to match it." They design for cost from the outset and build a supply chain that turns that design into a scalable, profitable business. According to a Harvard Business Review article: “Companies that manage to outmaneuver competitors on price have mastered the art of shaving prices to gain volume without provoking competitive retaliation.”

By breaking down the cost elements of a product, Should Cost Modelling facilitates a deeper understanding of cost drivers, enabling businesses to identify opportunities to reduce cost throughout the product lifecycle. It’s a bottom-up, data-driven approach that breaks a product or service into its individual cost elements and then reconstructs the total cost from scratch.  

For example, Carrier, a global manufacturer best known for heating, ventilation, air conditioning, and refrigeration (HVAC/R) systems, cost engineering team adopted digital manufacturing simulations to build granular should-cost models for complex parts such as compressor rotors, which involve intricate processes like cylindrical grinding and sand casting. By using 80+ digital factory configurations, they gained insight into key cost drivers including tight tolerances enabling more effective supplier negotiation and internal costing decisions.

Assessing the total cost of a product over its entire lifecycle helps businesses understand the long-term cost implications of design and manufacturing decisions, thereby informing pricing strategies and identifying areas for cost reduction.  

Organizations such as New York City Transit, U.S. Army Corps of Engineers and Caterpillar leveraged lifecycle costing looking at all costs from acquisition/development through its use and then the eventual disposal. Each organization saw alignment with total cost efficiency over the life of the product that enhanced financial planning and sustainability. 

When organizations analyze the commonality of parts across products, they gain the insight to bundle sourcing into strategic packages. This approach drives economies of scale, simplifies supplier relationships, reduces inventory complexity, and promotes standardization and interchangeability. This ultimately delivers cost savings and demonstrates operational agility.

Companies are also noticing how Commodity Packaging supports ESG goals. In fact, Unilever standardized packaging components and materials across product lines, improving recyclability rates, reduced virgin plastic use, and cut CO₂ emissions in logistics. All of this fed directly into their annual ESG performance metrics and CDP disclosures. 

Smart sourcing starts with choosing partners for value, not just price. By targeting suppliers who consistently deliver high-quality materials or services at competitive rates, companies can trim procurement costs and strengthen supply-chain performance. When combined with Should-Cost modeling, this approach pinpoints the most cost-effective regions and supplier options turning sourcing into a strategic advantage. 

According to Linda E. Ginzel, Clinical Professor of Managerial Psychology, University of Chicago Booth School of Business, "Negotiation is the essential leadership skill for those creating a different future."

In this case, the different future leaders seek involves securing favorable terms with suppliers, including pricing discounts, bulk purchase agreements, and flexible payment terms, therefore directly impacting supply chain costs. Tools such as Should Cost modelling and Zero-Based estimates allow procurement to design fact-based negotiations by intrinsically understanding the bottom-up cost drivers of a product or service, including materials, labour, and overhead costs. 

Manufacturing processes constitute a significant portion of overall expenditure for many businesses. These costs are not just an operational metric; they are a strategic lever. Reducing them directly impacts profitability, enables competitive pricing, strengthens supply chain resilience, and supports sustainability goals. 

Cost excellence is the foundation of market excellence. As cost pressures and market complexity continue to rise, organizations that embed cost excellence into their DNA will not only remain competitive but also unlock new opportunities for innovation, growth, and sustainability. In an environment where efficiency and agility determine market leadership, cost excellence becomes the foundation on which lasting competitiveness is built.