By Brett Holland
Imagine you have just ordered a new car, having negotiated a final price and signed the papers. A few days later, the dealer calls. He's very sorry, but the parts used to make the car were more expensive than estimated, so they need to increase the purchase price by 7 percent. Would you pay? Not likely.
Manufacturers of complex new products often face a similar challenge. After undergoing an exhaustive process to bring a new product to market, executive management often discovers that critical parts or assemblies cost more than originally estimated. Their choice at that point is to postpone the launch or proceed as planned and watch profit margins erode. Obviously, it would have been much better if the manufacturer had been able to nail down the product costs early in the process to establish a realistic pricing structure.
Cost Analysis: Don't "Reinvent the Wheel"
Recalculating cost structures late in the new product introduction (NPI) process is like "reinventing the wheel" since it typically requires extra time and resources during production or post-production phases to make adjustments that should have been made earlier in the concept and design phase.
If a company can discern the true cost structure of a product during the design and planning phase, it will be far easier to keep costs in line and eliminate costly rework later on. This NPI "true costing" philosophy should be an integral part of any company's product lifecycle management (PLM) strategy. But to achieve this, many companies must change their approach to developing new products and bringing them to market.
Traditional NPI processes call for design engineers to create the product concept and design with little if any data input from manufacturing engineers or the supply management specialists and suppliers who cost out the components. Only later, when a design is finalized, do these other supply chain professionals become involved, offering their expertise regarding design for quality, manufacturability and cost. This late involvement can lead to significant delays in product launches. With complex product lines, a company may need to procure thousands of materials and parts, making true cost estimating of new products even more time consuming and uncertain.
There is a better way. Getting the product-cost balance right the first time requires product managers to bring together people from engineering, supply management, manufacturing and other areas early in the NPI process to establish the real business opportunity and true ship costs.
Getting to True Product Costing
One proven method to effectively manage product costs earlier in the NPI process is to employ feature-based cost analytics (FBCA). FBCA represents an innovative, intelligent approach to cost management of manufactured products. The concept was developed by top experts in product development, data mining and statistical analysis, with practical input provided by manufacturing and supply chain best practices leaders. Unlike traditional project-based cost management approaches, the FBCA approach provides a dynamic mechanism to continuously evaluate the cost impact of design features at any time in the product lifecycle. Using this automated approach, an analysis that previously took product development and supply management experts months to complete, can instead be done in real-time.
FBCA software also facilitates valuable interaction and collaboration across engineering, supply management and financial functions. The objective of FBCA is to transform these interactions to make them faster and more strategic, with the end goal of attaining complete cost alignment of products throughout the product lifecycle. FBCA can make a difference between a product that meets cost targets the first time out, and one that requires arduous reworking to get costs back into alignment.