Recently, I was consulting with a procurement group, one of its OEM customers, and a product engineering firm. The goal was to find ways to reduce the cost of a particular product.
There are two categories for a company’s balance sheet: the income side and the expense side. We want expenses to be as small as possible and income to be large enough to offset expenses and earn a profit. At the same time, we want to keep the cost of the product as low as possible to meet the customer’s value expectations: Customer Value = Benefit – Cost.