Facebooktwittergoogle_pluspinterestlinkedinmailFacebooktwittergoogle_pluspinterestlinkedinmail

Many manufacturers have avoided adopting product cost management (PCM) systems due to perceived level of complexity in doing so. Here we will discuss a few of the key principles of PCM to offer guidance in executing an effective PCM program.

First and foremost, transparent knowledge of the entire value chain is critical to achieving superior product cost management. However, many struggle to implement an effective system that has such capabilities. The challenge lies in the manufacturing environment, where programs are started and managed in isolation. In these cases, product and sourcing information are decentralized and likely out of sync.

To address these issues, many companies try to gain visibility into the cost of product development by using methods such as spreadsheet analysis and other manual processes. Thirty-nine percent of all respondents in our survey cited too many manual processes as a top challenge, which can cause development teams to miss or exceed their cost targets due to factors such as outdated information. In addition, using a hand calculation method prevents companies from having a single, consolidated view of all product costs.

PCM-Figure2

Design decisions are often made without a full understanding of their impact on cost. Limited or no visibility into the financial consequences of decisions could send product fabrication over target cost, an overshoot that could create  a significant expense in re-work. On the other side, value engineers tasked with reducing product cost are often asked to do so late in the development cycle, or worse after design release during the production phase. Changes this late in the development cycle are often the most costly and can severely limit product success.

To address these pressures, companies should follow the Best-in-Class. Aberdeen used five metrics to measure an organization’s performance. Respondents were asked to identify the frequency at which products in the past two years met these targets: product cost, launch date, expected revenue, and quality. They were also asked to measure the amount of change in profit that occurred within the same period.

PCM-Figure3

Best-in-Class companies consistently outperformed their peers in all four target metrics. The percentage of products that met these target were consistently over 80%. The biggest difference between the Best-in-Class and All Others can be seen in the percentage of products meeting their expected revenue target, which they were 47% more likely to meet.

Overall, companies can significantly reduce their production costs, decrease delays to market, and minimize compromised quality by taking the right steps to effective PCM implementation. This requires a systematic approach across the entire enterprise by deploying a proven set of cost management capabilities to equip employees to remove costs at any stage.

Facebooktwittergoogle_pluspinterestlinkedinmailFacebooktwittergoogle_pluspinterestlinkedinmail
Subscribe To Our Newsletter Today and Receive the Latest Content From Our Team!

Subscribe To Our Newsletter Today and Receive the Latest Content From Our Team!

You have Successfully Subscribed!