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Article|McKinsey Quarterly

Bringing the voice of the customer into the factory

Consumer-facing companies typically know more about their end customers than contract manufacturers do. Passing that knowledge along is good for everyone.

December 2013 | byDave Fedewa and Guillermo Lopez Velarde

Many companies are quite successful at outsourcing their design and manufacturing to cut costs or fill gaps in expertise. Yet it’s always a good idea to examine these relationships closely, since there may be opportunities to sharpen product features and further reduce costs. The private-label offerings of retailers, for example—despite producing margins that are typically more than 20 percent better than those of similar branded goods—sometimes contain features and specifications that customers don’t particularly value, while lacking others they consider critical. For example, one hardware retailer’s private-label measuring tape had a sturdier, heavier retraction coil than those of competitive models. But what customers really wanted, the retailer found, was a smooth retraction movement, not a strong coil. By getting the supplier to use a lighter, smoother one, the retailer reduced the product’s cost and increased its value to customers.

Product teardowns have revealed similar “design to value” opportunities across many other product categories.1 We estimate that global retailers could save at least $55 billion by pushing contractors to rewrite product designs and specifications—while maintaining or improving consumer perceptions (exhibit). Those savings opportunities extend far beyond consumer packaged goods, to include consumer electronics, auto parts, office supplies, and home-improvement products.

Exhibit

Design-to-value opportunities across a number of consumer-facing industries suggest the potential for $55 billion or more in aggregate annual savings.

About the authors

Dave Fedewa is a principal in McKinsey’s Atlanta office, where Guillermo Lopez Velarde is a specialist.

About this content

The material on this page draws on the research and experience of McKinsey consultants and other sources. To learn more about our expertise, please visit the Retail Practice, Consumer Packaged Goods Practice, Operations Practice.