January 1, 2014
By Julie Driscoll
If you are working on a new product development initiative (NPI) for a discrete manufacturer, you’re likely under pressure to work within specific cost, weight, market and quality targets under very tight timeframes. Developing and producing products that can meet all of 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. Profit margins are reduced because of product cost overruns; time-to-market is delayed because of the need to firefight cost “surprises.” And there is often expensive post-production cost reduction rework required.
At the core of all of these challenges is the inability to accurately identify, assess and manage detailed product costs early enough in a product’s lifecycle.
Incorporating Cost Management
Best-in-class companies are applying effective cost management strategies in the earliest stages of their product design process, and collaborating on cost analysis across functions. As a result, they are realizing huge repeatable benefits in both hard and soft cost savings, including:
- Setting and managing cost targets and getting them right the first time, before products or parts go into production.
- Quickly evaluating the cost of new product design alternatives so that they can focus more time 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 cost experts, manufacturing experts or external suppliers.
- Creating should-cost estimates to be used to support vendor selection, quote validation and supplier negotiation.
Implemented properly, most cost management activities fit naturally into existing engineering and sourcing activities and processes. These teams often see time efficiency gains because they don’t wait as long for cost estimates to come from suppliers—and they reduce expensive, late-stage rework.
Early Cost Visibility
Companies should evaluate tools that enable engineers to quickly and precisely determine cost by automatically pulling geometric and feature information from a CAD model. This enables team members who are not cost engineering or manufacturing experts to create an estimate and compare against established target costs. Strategic sourcing managers and manufacturing engineers should also have early visibility to product designs and the most current cost estimates, so they can provide input into alternative designs, sourcing options and manufacturability.
Costs should be regularly reassessed as features and design ideas are added or subtracted, so tradeoff decisions can be evaluated and cost impacts can be addressed. Cost evaluation milestones should be established.
Get a Cross-Functional View of Product Cost
Providing cross-functional teams with a common view of product cost at each stage of the product development process ensures all parties affecting product cost are collaborating early, accessing the same information and working to prevent late-stage cost surprises. The resulting benefits are significant:
- Strategic sourcing managers are able to consider make vs. buy decisions earlier. This can improve profitability, and leverage the design and manufacturing expertise of supply chain partners.
- Manufacturing engineers can regularly evaluate designs for manufacturability, and suggest changes that can have a profound impact on cost and time-to-market.
- Cost engineers get access to a broader range of cost information than ever before, and are able to increase their overall economic impact on the company.
Because most new product initiatives typically build on a current platform, being able to load a bill of material (BOM) and carryover part costs from product lifecycle management (PLM) or enterprise resource planning (ERP) systems is important to successful enterprise cost management initiatives. Furthermore, after an NPI team member calculates cost for a new product design, it is important that your product cost management solution is capable of storing that data back within the existing PLM or ERP system to create a closed-loop flow of information.