PLM and Enterprise View of Product Cost

PLM and Enterprise View of Product Cost

Yesterday, I touched a topic of connection between CAD and PLM. The discussion started by Peter Schroer of Aras and my post, generated a very interesting opinions exchange related to the importance of balanced management of information about a product. It made me think about Product Cost. Cost is one of the most important topics in manufacturing organization, in my view. The ability to manage and control cost becomes absolutely crucial in a modern manufacturing organization. So, I decided to raise few questions and thoughts with hope to have you commenting, discussing and sharing your experience.

Product Cost in manufacturing organization

The calculation of cost is easy if you have numbers. However, in most of the cases, elements of cost formation are scattered between different people in the organization. It creates a high level of complexity. The multiple dependencies make the task of cost calculation next to impossible. Organization is spending significant resources to get cost under control.

System Integration and Cost Drivers

To integrate systems influencing cost formation, can be one of the possible ways to bring cost under control. However, integration of systems is not an easy task. It is either very complicated or very costly or both. The problem of enterprises is that they are taking system integration as a “process task”. This is a very natural way to see “a process oriented view” of systems.PLM systems today are trying to design processes that will integrate cost information inside of PLM database. I also call it “push view”. We are pushing processes between systems. However, formation of product cost is not related to processes.

Enterprise View of Cost

The idea of enterprise view of cost is different from a process-oriented synchronization of information between systems. In fact, we can reduce a complexity of cost formation by stopping pushing information between systems. Instead of, we can think about each system expose relevant cost formation criteria. Now, think about big Excel aggregating various cost parameters. The potential of such an enterprise view of cost can be very interesting.

What is my conclusion? The ability to provide cost is absolutely important. The hidden problem is scattered information about cost structure in an organization. To form “enterprise view” can be an interesting problem to solve. PLM is pretending to make it happen. I don’t think we can see a massive deployment of product cost solution from PLM vendors. The key problem to resolve is a complexity of multiple factors influencing cost – design, supply, manufacturing. Just my thoughts…

Best, Oleg

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  • John

    Hello Oleg … sounds interesting. We found an answer to the most important question about cost for most of the companies. What do they need ? We think, that most of the companies need cost transparency. With total cost control in the development phase – and over the entire lifecycle – the companies are able to engineer and produce market driven products. Where do manufacturing cost begin ? Of course in the cad. It’s too late if the cost are stored in the ERP. First of all, the engineer define the manufacturing cost for about 80% – while developing a new product. And cost transparency is important to know everytime “am i in the target cost – or are the target cost already exeeded?” And the most important thing is, that engineer’s must learn cost sensitivity. Regards from John – http://www.kingcost.net

  • Jim Hamstra

    Many large manufacturers do NOT want total cost transparency for very valid business reasons. For both the supplier and the procurer of parts there may be different cost structures associated with the SAME part for different contracts/applications. I refer here to cost as opposed to price. How can this be? Variances in order quantities, location where the part is produced, sources of materials for a given production run, testing requirements for different customers, etc etc.

    Also for contractual or other business reasons the enterprise may not want individual design engineers to know the real cost structure. For many corporations the actual cost breakdowns are closely held proprietary information with access limited on a strict need-to-know basis.

    Yet these same engineers are supposed to be designing for optimum cost?

    On solution to this is to have pro forma costs in the PLM system so that relative cost comparisons can be made.

    To make these comparisons more realistic there needs to be a table of (quantity, pro forma cost) for each part or class of parts. The fully-amortized cost of producing or procuring 1 part vs 1 million parts is very different.

  • Peter Bobov

    Good morning, Oleg

    In your post you brought up a very complicated, but nevertheless a very interesting topic. Any manufacturer of any product is always interested in knowing the product cost because in fact it is an indicator

    of effectiveness of his entire team (designers, developers, technologists, managers, purchasers). Knowing the value of the cost of your products you can better organize and direct the subsequent processes of

    your business. In this case, the sooner and more accurately unit cost is calculated, the better.
    It is worth noting that getting the value of the cost is a useful task itself, but also it’s a good idea to have the following information:
    – which factors the cost depends on, how strong this dependence is, where it is more strong and where it is less;
    – how different changes influence the cost of the product (changes in suppliers’ prices, changes in design, changes in production technology);
    – what activities will be most effective to achieve the greatest cost savings, or at least, keep it at current levels;
    – how the cost changes in time, what it was six months ago and what it is now, what are the main reasons for the increase.
    As noted by the previous commenter, to receive the cost after the fact in ERP systems is, indeed, too late. Time delays for industries with long cycles can be very large, which in turn may lead to the

    adoption of delayed decisions and eventually a loss. To mitigate these risks, “the calculation of planned cost” will be a good solution.
    In our software products, we provide a user the ability to calculate the cost of the product in advance, ie, before the production process. The initial data calculation is solely the information from

    specialists involved in product development (designers, engineers, etc.).
    Here’s a video clip of cost calculation and an analysis of our software:
    http://www.tcsdev.com/product/vogbit/video/prilozhenija/sebestoimost_raschet_analiz_otchety.php

  • Rpatel

    i would like to know your thoughts on WIndchill and how it compares

  • beyondplm

    John, thanks for your comment and links. How do you manage to bring cost information to the CAD? For most of the companies, it is ERP or PDM environment for the best. Regards, Oleg

  • beyondplm

    Jim, thanks for this excellent example! I’ve a similar solution to what you explained as “proforma-cost”. Customer, I’m talking about designed a special procedure for transferring cost information in PLM. The rules of “cost transfer” established a criterion for engineers in “design for cost” goal. However, I found this implementation very complicated. Best, Oleg

  • beyondplm

    Peter, thank you for such a deep insight and shared link. I found it very interesting. I agree 100%. Cost needs to be estimated as soon as possible in the process of design/development. ERP is too late…Best, Oleg

  • beyondplm

    Rpatel, Let’s give an option for PTC people to answer. Best, Oleg