In this issue of Design News, you'll find a special package of stories on how to shorten design cycles. Cutting design time is one of the biggest challenges engineers face, according to our most recent Simmons Study of the design engineering universe. There's lots of reasons for that, including increased competition both domestically and globally. But, in the end, it all comes down to money.
Why do companies want to shorten design cycles? Because, all things being equal, the company that gets to market first with a new product recaptures its investment sooner. Hence, the company may make more money with the product than competitors who get to market later.
According to financial gurus, a dollar today is worth more than a dollar tomorrow. So, companies convert all future cash flows into present dollars to find the net present value (NPV) of a project. According to Managing Editor Karen Field, a mechanical engineer who has re-searched the topic, the formula finance managers use is:
Co is the initial investment, Cn is the annual sales, and r is the rate of return.
Using the formula, Karen calculates that if you invest $100 million in a project at a 15% rate of return and expect to generate $337.5 million in sales over five years ($37.5 million the first year, and $75 million each of the next four), the NPV of the project is $119 million. Payback is three years. But, if a competitor makes the same investment in the same technology and gets the product to market six months sooner, (NPV = $151 million) it can shave a full year from the payback period. Quicker payback, faster profits, more potential earnings.
Where does product quality come into the equation? It's implied in the estimate of rate of return, say the financial suits. But not for engineers: Quality for them is primary.
The message for engineers: The math is important, but let the bean counters deal with it. Engineers should continue to deal with the hidden factor--quality. Do everything you can to shorten design time, use every tool at your disposal, but don't get distracted from your primary goal: designing quality products.