MANAGEMENT + SYSTEMS
Effective enterprise product cost management
The business benefits of a systematic enterprise product cost management (PCM) programme are significant, yet many manufacturers still don’t implement these initiatives effectively. Traditionally, product cost management has been performed by highly-specialist cost engineering experts. Myles Peyton, managing director of northern Europe for PCM software specialist aPriori, explains how innovative software tools are now equipping professionals across every department of a manufacturing enterprise to execute an effective PCM programme with maximum impact and cost reduction potential.
influence product costs in many different ways. Engineering teams might decide on specific designs
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for example, but there will usually be multiple alternative approaches that would meet the same form, fit and functional requirements - each factor dictating a different cost. Likewise, sourcing teams will work to produce a design with multiple potential costs for manufacturing, negotiated with reference to materials, plant cost structures, capabilities and process controls. And then there’s the manufacturing team, which will recommend a way to produce the design and estimate a ballpark cost, even though there may be other, even more cost-effective, ways to tool and manufacture the same design.
“ Every discrete manufacturer will be well aware that ‘Cost of Goods Sold’ (COGS) impacts every impor tant business measure… but they’ll also know only too well, that managing product costs is not easy.”
In Europe we have a strong history of enterprise product
cost management (PCM) practices and a proud tradition of recognising cost engineering experts and value analysis/value engineering (VAVE) teams that understand and specialise in
122 Fastener + Fixing Magazine • Issue 76 July 2012
n any strong discrete manufacturing and distribution business, such as those spearheading the European fastener and fixings industry, you will always find a broad range of people and departments with roles that are intended to
cost reduction to support core business functions. With relevant expertise in manufacturing processes, supplier management and quote estimation, these are all highly capable and valued experts with unique domain knowledge built up over time. However, the knowledge of these individuals is extremely difficult to replicate and scale across multiple products within a complex manufacturing business. It’s a challenge that must be met, and quickly. Every discrete manufacturer will be well aware that ‘Cost of
Goods Sold’ (COGS) impacts every important business measure for revenues, profits, time-to-market, competitive differentiation and more. But they’ll also know only too well, that managing product costs is not easy. Challenges exist at every level across product lifecycles. Engineering makes design decisions without understanding their true cost impact. Cost engineering decisions come either too late in the development process or even after product launch, causing delays in production and the reaping of cost benefits. Also sourcing professionals often don’t have sufficiently accurate information to negotiate preferred pricing with suppliers. The negative impacts of these challenges are very apparent: reduced profits, delayed time to market, limited product innovation. But how do manufacturers bridge that gap between
understanding the challenges and finding a rapid, effective solution?
Sweating the smaller stuff Within the discrete manufacturing there is usually strong
focus on the manufacturability and cost-optimisation of high-value, medium-to-high impact, strategic parts. This is understandable; however it can result in low-to-medium impact, or commodity parts, a bracket that embraces a high percentage of fastener and fixing components, crucially falling under the cost management radar. The reason for this may be due to a general acceptance that
there is little optimisation advantage in this area. The strategy of only performing cost optimisation on strategic, complex parts will not deliver maximised savings. PCM must be applied to all parts. Actually, such an oversight can easily result in a huge missed opportunity. This situation is a classic example of the ’80-20 rule’, sometimes referred to as the ‘Pareto Principle’. Roughly speaking, this would translate to around 80 percent of a manufacturer’s costs tied up with just 20 percent of its parts. As these are generally high-volume commodity parts, the resulting
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