The Network Effect

Fully harness the network effect potential and yield the maximum value possible from your product cost management deployment


This leads us to the second recommendation for advancing your enterprise product cost management deployment and truly embracing the principles of the network effect. On its own, your product cost management efforts can certainly deliver significant value to your organization. However, without synchronizing it with your other enterprise automation solutions, your product development team cannot leverage valuable data that already exists in other systems (such as BOM structures, catalog part pricing, material stock and pricing information, time standards and other manufacturing process data, logistics costs, etc.). As new material costing information is entered into your ERP system, for example, it could ripple through to the product cost platform, and everyone on the product team would benefit from this real-time update of relevant data.

Each of the outer systems—PLM, ERP, manufacturing resource planning (MRP) and supply chain management (SCM)—contains individual components of cost.  By not tying all of the individual parts together, the company is left with an incomplete view of costs for new product initiatives.

Manufacturers looking to gain an edge over their competition are taking a more holistic view of product cost, and striving to implement a culture of cost consciousness across their entire product organization. To achieve this goal, product development teams need to work with their counterparts in the information technology (IT) organization to define and implement a technology infrastructure that provides one common view of product cost as a design evolves from concept, to detailed design, to sourcing, and ultimately, manufacturing or assembly. And, it needs to be integrated with other mission-critical enterprise systems such as the aforementioned.

This leads us to the last, and possibly the most important and often overlooked element required to fully capitalize on the network effect. Tying together all internal organizations affecting product cost via a common product cost management platform is an excellent start. But, if you only connect your internal organizations, you are missing one of the key links in your value chain—suppliers. Sending out requests for quotation (RFQs) to a supply base likely gets you at least three different quotes in which you can pick the one in the middle and still not pay what a product “should cost.”

Today, companies are relying more than ever on the design, manufacturing and cost expertise of their strategic suppliers. Unfortunately, from a technology integration perspective, suppliers are off on their own, struggling against the incoming tide of RFQs. However, imagine if you were to identify a handful of strategic suppliers and convince them to join your enterprise product cost management network.

Imagine if, instead of selecting a baseline product cost model to generate a cost estimate, you could select a cost model based on your primary sand casting partner. This would yield an accurate cost estimate that represented your supplier’s material costs, labor costs, overhead costs, manufacturing capabilities, process routings, logistics costs, negotiated margin, etc. Furthermore, instead of waiting the typical two weeks for Beachside to respond to your RFQ while they manually develop a quote, what if it only took two days to generate the quote?

There are two effective approaches for integrating strategic suppliers into your enterprise product cost management (EPCM) network. First, you can leverage your buying power and pre-established relationship with a supplier to collect information about that supplier’s operations and general cost structure. Then, take that information, and build a supplier cost model within your own EPCM environment that appears as a choice for end users of the system each and every time.  

As an alternative approach, you can set up a meeting between your EPCM solution partner and several of your key suppliers. Your EPCM solution partner can work directly with those suppliers to implement their systems at the suppliers’ site, building a baseline cost model that mimics the capabilities and cost structure at one or more of their manufacturing sites. Now, when you need a cost estimate, you simply send a 3D solid computer-aided design (CAD) model to your supplier with the RFQ.

Because the supplier no longer has to manually review endless sheets of drawings and other related information, and can simply open the CAD model in its own EPCM system, the company can rapidly generate a detailed cost quotation and the supplier’s response back to the manufacturer can be cut dramatically. This has a direct and positive impact on the manufacturer’s product schedule and overall time to market.

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