savings in this area can be extremely significant. Now, more than ever, European discrete manufacturing and distribution firms need to become aware of critical product cost management blind-spots if they are to be as competitive as possible. The need for innovation and competitiveness as well as reductions in enterprise-wide product costs and cycle times – must be met by the broader application of PCM. Historically there was insufficient bandwidth to cost and


optimise every part in every project, but that has now changed with the introduction of specialist product cost management software solutions developed specifically for the discrete manufacturing industry. Effective PCM is based on a set of systematic activities, processes and tools that can be used throughout the enterprise to drive the lowest possible costs. PCM enables discrete manufacturers to attack cost at the point of origin while ensuring the greatest impact on enterprise product cost reduction. This strategy can deliver a consistent cost culture across the enterprise.


“ To drive down ‘Costs of Goods Sold’ (COGS) by entire percentage points, European manufacturers must look to deploy PCM fur ther upstream in the development process and across all depar tments and levels.”


Core cost management activities and processes There are a number of core activities involved in an effective


PCM strategy, which can broadly be split between cost savings opportunities in the engineering itself, and cost savings opportunities in sourcing. The greatest engineering cost savings can be made through


analysis early in the product lifecycle. For example, during new product introduction (NPI) multiple design alternatives must be evaluated for low costs. Likewise in both NPI and re-engineering projects, cost trade-offs for different concept deigns need to be studied during the R&D stage. Only then is it possible to evaluate the costs of proposed solutions to an engineering change order. When considering sourcing and supply, it’s important to first


evaluate multiple manufacturing and tooling alternatives for lowest costs. This process should also include a ‘make versus buy’ analysis. By generating a detailed ‘should cost’ case,


manufacturers are then able to more knowledgeably validate supplier quotes and ensure the lowest pricing. Over time they can conduct batch analysis of current prices of entire commodity groups in order to clearly identify over-cost outliers. Ultimately, evaluating multiple cost-cutting ideas for products in real-time will help to identify the highest potential reductions in the shortest amount of time.


The business benefit of effective enterprise product cost management tools Effective PCM is enabled by putting the proper tools in the


hands of anyone that impacts product cost. These tools help assess true product costs across the enterprise at a detailed level at any stage, and enable people to seize appropriate opportunities to reduce costs. For example, product cost management systems can quickly


and consistently generate and manage accurate estimates without requiring specialised manufacturing or cost knowledge, complemented by reporting systems for documenting and tracking cost management results and KPIs over time. PCM can also drive analysis through the systematic searching of large volumes of data, while identifying cost outliers and trends as well as bill of materials (BOM) cost tracking systems that roll-up costs at any point in a product’s lifecycle. Without these core activities, processes and tools, PCM


remains a highly manual and decentralised function - of value only to manufacturing or cost engineering experts. Without being more intuitive, PCM can only be performed once or twice per NPI cycle, severely limiting the windows of opportunity for identifying product cost savings. This also leads to inconsistent estimation methods using static information that is difficult to update, manage and share. To drive down ‘Costs of Goods Sold’ (COGS) by entire


percentage points, European manufacturers must look to deploy PCM further upstream in the development process and across all departments and levels. Each group must identify its key cost control points and define the activities and processes needed to reduce those costs. These groups also need the right tools to analyse cost trade-offs quickly and easily each time they make a decision. Forward-thinking manufacturers are now pulling away from


their competition thanks to instilling a systematic approach that makes effective Product Cost Management the norm inside their organisations. The quickest route to success is to partner with an experienced technology solution provider that can provide solid proof-points, a demonstrable history of success with comparable organisations, and practical advice based on that well-established track record of producing positive results for its customers.


About Myles Peyton Myles Peyton is the managing director, Northern Europe,


for aPriori (www.apriori.com), a provider of product cost management software solutions for discrete manufacturers. He and his team have advised hundreds of leading European manufacturing and distribution companies on how to reduce product costs across the enterprise, reduce cycle times and get higher quality products to market faster.


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