Cost governs every manufacturer. It doesn’t matter if they make high-end luxury cars or paper cups — if the product’s manufacturing costs are too high, their days are numbered. Controlling and anticipating these costs are among a manufacturer’s most difficult tasks.
So where do companies fail during product cost management? More importantly, how are the winners winning? According to our report on Effective Product Cost Management, manufacturers among the Best-in-Class are more likely to hit product cost targets, launch dates, and revenue targets. So what are they doing right?
Incorporate Cost from the Start
Just as the map is not the territory, a product’s blueprint is not the product itself. The realities of the manufacturing environment often mean that products become more expensive to manufacture than intended. This is one of the reasons why products fail — in our survey, 45% of respondents believe that manufacturing cost overruns hinder product success.
How do the winners avoid this pitfall? In general, they keep a close eye on their design teams. Instead of waiting until a design is ready, and then costing out materials, Best-in-Class companies will monitor costs from the outset. Best-in-Class companies are more likely to have visibility into the cost of a product design from the get-go (55%), and they’re also more likely consider low-cost alternatively to a set of design choices (50%).
Trust, but Verify
To continue our analogy above, no plan survives contact with the enemy. A particular pricing model may predict a certain set of costs, but the realities of manufacturing in the real world means that predictions may not hit near the mark. Checking on design early in the process may help keep costs down, but the Best-in-Class constantly refine their models based in real-world feedback. In the main, they are 51% more likely to verify their models by using actual cost data.
Use the Right Tools
Finally, manufacturers shouldn’t bring a knife to a gunfight. In a world of rich PCM tools, Excel is not an acceptable substitute. Spreadsheet calculations are no longer viable methods for calculating costs. This is for two reasons. Firstly, spreadsheets don’t update in real-time, and neither do calculations done by hand. The cost of materials will fluctuate in real time, however, which means that spreadsheet calculations swiftly go out of date.
Secondly, manual processes lack the ability to take all of the factors that make up costs and put them into a single frame. This lack of visibility represents a challenge for 46% of companies — and 39% say that spreadsheets directly obfuscate their ability to gain insight into product costs. In the meantime, the Best-in-Class don’t just use better tools, they use them holistically. Sixty-seven percent of Best-in-Class companies will integrate PCM with enterprise resource planning (ERP). Fifty-two percent will integrate PCM with product lifecycle management (PLM).
In the final analysis, Best-in-Class manufacturers master product cost management in three arenas: integrating PCM in the early design phase, adjusting cost models in real time, and using tools that enable the former. This allows them to consistently beat product launch targets while meeting or improving on their product launch dates.
If you’re a manufacturer, you already know that meeting a launch date puts you in a fantastic position to beat your competitors. Research by Aberdeen group has shown that effective PCM is the key to unlocking this advantage. For more information, as well as a wealth of other data on how great manufacturers do business, download our report on Effective Product Cost Management.