How Not Valuing Time Can Be A Costly Mistake

ACTech does Rapid Prototyping of sand and investment castings.  Time is the most important focus of our work and we help our clients shorten the time to develop new products.

While there is a lot of talk about time to market and the value of time in general, very often we have little idea about the true numbers behind the concept.  The result is that development budgets focus on spending only and ignore time and the effect time has to the bottom line.

Some basic and simplified ideas of a product’s life cycle are, once a product is introduced to the market it has to repay all the investments that were done to produce the product over its life cycle.  Also it has to pay for production cost.  On top of it, the producer wants to make a profit.  Generally speaking the profit tends to be higher in the beginning of a product cycle, since with less competition higher prices can be attained. At the end of the cycle demand goes down, by extending the cycle with special offers the product can live a bit longer, but the chance for turning more profit diminishes. Let alone the problem that the old product might cannibalize on the profit of a newer product.

Since the end point of a product’s life seems to be relatively fixed, the only way to increase profits is to be in the market earlier.  If successfully implemented, not only the period where a profit is earned is extended, but additional profits are gained because the period for writing of capital expenditures is extended.

Last but not least for some companies being early in the market is the difference between being a market leader or a follower.  Sure Apple did not invent the smart phone, but by being perceived as the market leader they have more freedoms to set prices then their competition with similar products.  Subsequently their profits are higher.  Check your 401k - you profit from it too.

Next time you brainstorm on a new product and the budget to bring it to life, figure how much more you can sell by being 1 day, a week or a month early.  Evaluate how much more profit this will create. Then check how much it would cost to get there.

In the case of prototypes, the maximum price you should pay for a prototype should be

price of the cheapest quality supplier + value of time saved with the selected supplier

By this formula you will be surprised how cheap a lot of seemingly expensive prototype suppliers are selling.