PLM, ECO and Cost of Change

by Oleg on December 21, 2011 · 11 comments

Cost is an important topic. Period. Everybody agrees with this statement. I can even say many companies investing a lot in their ability to calculate and predict the cost of product. Compared to that, cost of change is much less exposed. However, cost of change can be even more destructive for the overall cost of the product you manufacturing and the business. Recently, I’ve been spending some time analyzing how companies are managing changes and how PLM systems are supporting them. I decided to put some thoughts about change management and cost calculation.

Cost Standard and processes

There are several policies or standards you want to have in your company when it comes to cost management and change processes. Change cost policy – usually specify the changes that required cost calculation (or not) and company payback period. Cost calculation document. You want to have it in the way that allows you to follow up it from the historical perspective as well as an instruction how to do so. The important question of every PLM implementation is how you are able to automate cost of change calculation and embed it in the overall change process.

Is there something you can call “average cost of change”?

The perception of people in any company is that cost is expensive thing to have. At the same time, it is hard to come with a range of how much an average change cost. $1K-5K is a range you might be hearing. But it is too broad.  Another point of confusion is to conclusion out  is included in this cost – engineering services, labor, equipment, etc.

Cost Calculation Classification

I can classify all changes into four groups: cost reduction, product maturity, product development, others. Depends on what type of change you are estimating, actually change cost calculation can be different. If you estimating change that marked to save cost or time, you absolutely need to calculate the cost. However, if you making a change that related to product maturity, you probably can skip some cost of change calculation. Taking right assumption can significantly improve the speed of change processes, which is an essential part of every manufacturing organization.

What is my conclusion? Change management is one of the most complicated discipline in product development lifecycle. To measure it right and tack the history and metrics of changes together with cost calculation is tricky and very important. I haven’t seen ready out of the box implementations that can do so. Main reason – system customization is complicated to have all information in PLM system. Sometime, if cost calculation is complicated, you can calculate profit erosion. What is your practice and experience? Speak your mind, please. Do you have any examples you can share?

Best, Oleg

Image: jannoon028 / FreeDigitalPhotos.net

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Tagged as: Change Management, cost, ECO, PLM, Product Development

  • Rick Franzosa

    A wise man once told me that, if a fixing a product issue discovered during the design process cost $X, fixing it in manufacturing will cost $10X, and fixing it in the field will cost $100X.  The true cost of change also must factor in the cause and effect of the change….
    -RTR

  • beyondplm

    Rick, yes, you are absolutely right! To have problems fixed during the design phase is much more efficient, rather than having it fixed during formal change after a product already released to manufacturing. Oleg

  • Scott McCarley

    Great post. Clearly the cost of product changes in a manufacturing setting is high and, as was pointed out, the cost goes way up for late-cycle changes. Historically many manufacturers have set aside as much as 30% of their engineering effort to address needed changes after a product has been released to manufacturing. Today, however, we see a trend toward manufacturers leveraging a PLM system to model, estimate and assess the impact (and cost) of product changes early in the design process. PLM enables all engineers to view cost targets and estimates early to help them make better, cost-reducing design decisions prior to product release –  ideally eliminating costly post-production value added engineering work and improving a manufacturer’s bottom line.

    Scott McCarley
    PTC

  • Chris Williams

    I think that when it comes to classifying change you need to dig into the cause.  For example a change that results in a recall is much more impactful cost wise than a change that is being done for cost reduction.  In one case the company is being forced into the change where in the other they are doing it in a more proactive manner.  In most companies the change processes are reserved for anything done to a released product so understanding the cause is important. 
    I also think you need to look at the change process.  Of course in many changes design files are modified (the team needs to make changes to the cad files for the part that are changing).  The time spent making the change and approving the change is trivial.  The process of changing these files and approving the changed files is well managed.  The real cost comes from all the little things that get done as a result, modify the tooling, re-qualify the tooling, come up with a use up plan for current inventory, modify the line to use up the inventory.  In many of our accounts they have a process to manage the changes to the files and they are using Vuuch to manage the details around the change.  We are finding customers that do this gain a savings in the time spent on the details around the change and capture a rich history of these details that can be either exported in PDF and checked in with the changed files or be used as part of a knowledge base.

  • beyondplm

    Scott, thanks for your comments. Agree – cost is an opportunity in PLM world. I'd say not leveraged by implementations today. Just my opinion, of course. Best, Oleg

  • beyondplm

    Chris, thanks for the comment! Additional classification of changes is beneficial, of course. Talking about you Vuuch, how it helps to analyze the cost of a change? I'm not sure got your point. Is it about saving time to proceed with changes? Best, Oleg

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  • Dev

    I am with you Rick, but many a times function and design issues will be visible only when the product is out for operation irrespective of testing or production release.  However the only thing which eats up company's margin considerably is that Engineer's or CAD designers making simple mistakes in designs/drawings and cost associated with it. For instance to fix a wrong H/W called out in model requires lot of approval process,documentation,engineering release,man power etc.
    - Dev

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