Meeting and beating new-product cost targets

Feb. 13, 2013
Julie Driscoll, Vice President, Strategic Marketing & Product Management, aPriori Inc., Concord, Mass.

If you are working on a new-product-development initiative (NPI), you’re likely under pressure to hit specific cost, weight, market, and quality targets under tight time frames. Designing and making products that meet all these criteria, particularly cost, can be extremely challenging.

The cost implications of design decisions made during development are often more significant than most manufacturers realize. Cost overruns reduce profit margins. And time spent “firefighting” cost surprises delays introduction. Expensive postproduction rework can also result. At the core of these challenges is the inability to accurately identify, assess, and manage detailed product costs early in a product’s life cycle.

Best-in-class companies start managing costs at the earliest stages of product design, letting engineering, manufacturing, and sourcing teams collaborate on cost analysis. As a result, the firms realize benefits, including:
• Getting cost targets right the first time, before products or parts go into production.
• Quickly evaluating the cost of design alternatives, letting engineers focus more on product innovation and less on cost analysis.
• Identifying the real cost drivers behind a product design and minimizing engineering changes later in the release cycle where they cost more to address.
• Eliminating long waits for price quotes from internal experts and external suppliers.
• Creating “should-cost” estimates to help select vendors, validate quotes, and negotiate with suppliers.

It’s not uncommon for engineering, sourcing, and manufacturing teams to complain that product-costmanagement (PCM) activities slow them down. In fact, the opposite is true — PCM can actually speed development. Efficiency gains often come out of faster cost estimates from suppliers and less late-stage, expensive rework. Cost-management operations fit naturally into engineering and sourcing processes, and the right PCM software complements the tools most companies already use.

There are some core requirements for effectively managing new-product costs, including:

Early cost visibility. NPI teams must know early on how different design alternatives impact costs. Companies should evaluate tools that let engineers determine cost by automatically pulling geometric and feature information from CAD models. Team members who are not cost or manufacturing experts can quickly create an estimate and compare it against established target costs.

Also, regularly reassess costs as features and designs change, to evaluate trade-offs and cost impacts. OEMs should establish cost-evaluation milestones at stage gates in the NPI process to assess the implications of various design ideas and alternatives. Sourcing managers and manufacturing engineers should also have early visibility into product designs and up-todate cost estimates, so they can comment on alternative designs, sourcing options, and manufacturability.

Cross-functional view of product cost. Providing product costs to cross-functional teams at each stage of development is also important. This ensures that all parties access the same information, collaborate early, and work to prevent late-stage cost surprises. The resulting benefits are significant. For instance, sourcing managers can consider make-versus-buy decisions earlier. This can improve profitability and make better use of supplychain partners and their design and manufacturing expertise. Manufacturing engineers can regularly evaluate designs for manufacturability and suggest changes that reduce cost and time-to market. And cost engineers get a broader range of information, giving them greater influence over a project’s overall economics.

Integration with enterprise systems. It’s important that PCM software works with existing PLM or ERP systems. Common requirements include loading a bill of materials and carryover part costs from the enterprise system, and storing PCM cost data in the PLM or ERP database to create a closed-loop flow of information.

Without these core practices and tools PCM remains highly manual and decentralized, and cost-engineering teams have limited ability to reduce product costs. For example, they may only focus on a portion of a product because they do not have the resources to cost all components. They are also forced to assess costs when designs are nearly final, severely limiting the window of opportunity to identify and act on potential cost savings. It also leads to inconsistent estimation methods with static information that is difficult to update, manage, and share.

Best-in-class manufacturers are distancing themselves from their competition with a systematic approach that makes product-cost management a normal course of responsibility and decision-making. Effective PCM programs can increase profit margins, ensure faster time to market, and improve product quality, too.

aPriori develops product-cost-management software used in sourcing, manufacturing, and design engineering.

© 2013 Penton Media, Inc.

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