Author's Preface: The first attribute of a product is its customer functionality; the second is product quality; and cost is the third attribute. Enterprise owners in manufacturing companies often establish a department dedicated to product costs, typically called "Cost Management" or "Cost Control," which is usually under the Finance or Procurement Department. However, this approach essentially "buries" most of the potential for reducing costs, improving efficiency, and enhancing the company's market competitiveness! Product costs are not achieved through "management" or "control"; they are designed / engineered. Therefore, in the Author's book "The Cost Engineering System for Manufacturing Enterprises" (published by Springer-Verlag & Publishing House of Electronic Industry), the author refers to the work of optimizing product costs and reducing costs while improving efficiency as "cost engineering." The term "engineering" here signifies "design and development." Properly establishing a cost engineering system is one of the most important tasks for every manufacturing enterprise owner!Figure 1: A "Visualization" of Traditional Cost Engineering (Some elements in the image were generated by AI Qwen 3.7)"Visualizing" the Daily Reality of Traditional Cost EngineeringFigure 1—drawing a bow, aiming to "hit the mark from a hundred meters," and striking the bullseye—vividly illustrates the entire process of cost reduction and efficiency improvement currently faced by enterprises. Here, the sole archer is the cost engineer, who must "pierce through" the "curtains" of the R&D, Quality, Sales, and even Procurement departments—which form multi-layered "barriers." These "curtains" are filled with objections, such as:- R&D: This idea is technically unfeasible! (A blanket "rejection" without conducting a feasibility analysis or validation plan)- Sales: "This idea will impact the customer experience!" (Is this based on actual customer experience? Has a 'car clinic' been conducted?)- Quality: "This idea will affect 'quality'!" (Quality parameters haven't been quantified—this is a "killing phrase")- Purchasing: "We can't find suppliers on the market capable of producing this design" (Was this based on thorough market research, or is it just an "excuse"?)- Finance: "Remains a bystander"Since cost reduction is solely the responsibility of cost engineering, the four departments mentioned above will spend a great deal of time "finding" countless "reasons" why this cost-saving idea "won't work." They won't spend even a single minute considering how to make it work! Out of the 10 "improvement" suggestions proposed by a cost engineer, perhaps only one "survives" to be implemented. This situation is primarily caused by problems with the organizational structure of the company's cost engineering system:1. The CEO does not prioritize "cost reduction and efficiency improvement," believing that costs are something to be "managed" and "controlled"!2. The Cost Engineering Department reports to the Finance Department or the Procurement DepartmentFigure 2: Traditional Cost Engineering OrganizationFlaws in the Traditional Cost Engineering Organizational Structure1. As the sole department responsible for cost reduction and efficiency improvement, if the Cost Engineering Department proposes 10 cost-saving ideas, they may face "obstruction and resistance" from multiple departments, with perhaps only one actually being implemented;2. The company's cost reduction and efficiency improvement targets are not strictly defined and are not broken down to departments such as R&D and Procurement; instead, the Cost Engineering Department alone bears the burden of meeting these targets;3. There is no "design-to-cost" approach applied at the source of cost generation in the design phase.How Can We Change the Current Situation?To change the current situation and break the current "deadlock," a brand-new cost engineering organization structure is needed:Figure 3: Optimal Cost Engineering OrganizationAs a functional department, the Cost Engineering Department needs to operate in parallel with R&D, Procurement, Quality, Manufacturing, and Sales departments. What are the advantages of this structure?1. The Cost Engineering Department reports directly to the company's CEO, which demonstrates the CEO's commitment to cost engineering;2. The company sets cost-reduction and efficiency-improvement targets, breaks them down to R&D, Cost Engineering, and Procurement, and incorporates them as one of their core KPIs. This encourages each department to proactively propose cost-saving ideas and explore how to implement them effectively, ensuring these ideas are actually put into practice. On the one hand, the number of proposed cost-saving ideas will increase exponentially; on the other hand, the "resistance" to implementing these ideas will decrease, leading to more successfully implemented cost-saving measures! (See Figure 4)3. Furthermore, "Design to Cost" can be implemented during the early stages of product design, as this phase offers the greatest potential for cost reduction and efficiency improvement at the lowest cost!Figure 4: "Visualization" of Optimal Cost Engineering (Some elements in the image were generated by AI Qwen 3.7)In summary, when executives prioritize product costs and establish a cost engineering system within the organization, the company will maintain unbeatable market and product competitiveness in future intense market competition—whether competing domestically or internationally!Author Dr. Liu Xiaoyi: Founder and CEO of CostKey Solutions Co. Ltd.(www.costkey-solutions.com); over 20 years of experience in new production processes, vehicle planning (including new energy vehicles), and cost engineering at Daimler Group (Mercedes-Benz) in Germany; winner of the German Physicists' Award; Expert on the Ministry of Industry and Information Technology's "Changfeng Plan" Think Tank for the New Energy and Intelligent Connected Automotive Industry; Director at Great Wall Motor and Chief Cost Officer of Hithium Energy Storage; Author of the Book Cost Engineering Systems for Manufacturing Enterprises, a key publication under the "National Strategic Assets Publishing Project" of China Industry and Information Technology Publishing Group; Graduate Student Industry Mentor at the School of Electronic Information and Electrical Engineering, Shanghai Jiao Tong University; Visiting Professor at the School of Automotive Engineering, Tongji University; Specially Appointed Lecturer in Cost Engineering at the MIIT Talent Exchange Center, China Automotive Industry Training Base, and Golden Finance Academy; Author of the "Liu Xiaoyi Column" for Gasgoo Auto; CostKey is China's first cloud-based, enterprise-level cost engineering SaaS software system, independently developed by CostKey Solutions, and the awardee of the Shanghai Municipal Science and Technology Commission Innovation Fund.
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