Different types of manufacturers face different business challenges, but when it comes to reducing the cost of existing products, they share a lot of common ground.
– Complex global manufacturing and sourcing strategies make it difficult for design and cost engineering teams to identify which product features are driving costs.
– Shifting cost dynamics in low-cost countries make it more difficult to understand the impact of rising material or labour prices on current product programs.
– Time spent on value engineering activities take away from time spent developing innovative new products.
– Sourcing teams tasked with reducing product costs may not have the tools to calculate what a product “should cost” or where the best opportunities for savings might be.
Reducing Current Product Costs – Best Practices
The best product cost management strategies begin attacking cost before a product goes to market, but for existing products, you don’t have that opportunity. Therefore, you have to identify savings on outsourced parts, in redesign and in improved engineering productivity. You may also look to optimise costs on a higher volume of parts by consolidating similar parts and suppliers.
To do these things effectively, you need to be able to identify the parts with the highest potential for cost savings and investigate various design, manufacturing or sourcing alternatives. An ideal workflow might look like this:
– A cost engineer or project manager creates a project Bill of Materials (BOM) using existing product and cost data.
– They define annual volumes and default production environment data depending on location, manufacturing process, dates, etc.
– The design engineer loads the project BOM and all associated data into a product cost management (PCM) system, and provides other key inputs necessary to generate a preliminary cost (e.g., material, process group, surface treatments, tolerances and any product assembly techniques). The PCM system can then generate a highly-detailed cost estimate that can be analysed at the product, subassembly or component level.
– The team can identify the most expensive areas of their product, stimulating ideas that might lower the cost. Additionally, they can flag in-house parts for manufacturing review or sourced parts to be quoted.
Through this type of cross-departmental collaboration, the team may be able to come up with a new design concept, sourcing or manufacturing strategy that lowers the cost and improves profitability. It also enables more team members to identify potential product cost savings. For example:
– Designers and engineers can simplify complex expensive parts, increase reuse and evaluate the most cost effective material or manufacturing options.
– Cost engineering professionals can apply that to a significantly higher volume of products – driving bigger cost savings than ever before.
– Manufacturing professionals can find more efficient manufacturing routings within their own factories.
– Sourcing professionals can identify cost outliers and renegotiate and/or resource for cost savings.
Critical Success Factors
The processes and practices outlined above can provide substantial benefits, but they require changes on both the people and technology sides of the business.
On the people side, managers must be actively engaged in the cost management process and actively tracking project progress. Effective product cost management also requires the participation of multiple groups in the organisation to capture and provide the necessary data for analysis and to take action on the findings.
On the technical side, manufacturers require a PCM system that is used by all departments, in any location. It should provide a central repository and a single source for product cost information across the organisation. It should also be accessible to anyone that impacts product cost – from new employees without cost management experience to specialised cost engineers. These systems should also integrate with other enterprise applications (e.g., ERP and PLM) that contain cost information, so that cost data can be shared seamlessly across your enterprise.
Additionally, the ability to automate costing and batch analyse hundreds or thousands of components at a time, and compare a calculated “should cost” to current cost can identify millions of pounds of potential savings opportunities. To do this requires the ability to read geometric cost drivers from a 3D solid CAD model. This significantly reduces the amount of manual data input required and accelerates the time to produce a detailed cost estimate. It is also important to use a system that can identify the most cost efficient manufacturing routings based on design, volume, materials, manufacturing process and manufacturing location changes.
The strategies outlined above can provide substantial benefit to manufacturers that implement them, but they require investments in people, process and technology to realise their full advantage. Put a strategy in place that spells out where you want to be in the next 12-24 months and consider which of these best practices you can put into action in your organisation.
By Myles Peyton, managing director, aPriori
