Companies that operate in markets where they compete on price are constantly seeking to lower their costs to generate profit at market prices. For many of these companies, costs of goods sold, COGS for short, are their largest category of cost.
The COGS of a product are the materials, labor, and overhead costs that can be tied directly to the manufacturing of the product. If a product is generating a low profit in production, it is difficult to lower cost by reducing COGS. The product design is complete, the tooling and equipment to manufacture the product are built, and the value stream to manufacture the product is established. Changing COGS when a product is in production can be costly, risky, or in some cases, not possible.
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