Product cost management and global manufacturing

Product cost management and global manufacturing


Product cost is the top priority for every manufacturing organization in the world. It can be large OEM or small hardware startup. To figure out how to manage and control product cost is absolutely important. I’ve been touching cost management earlier on my blog – CAD, PLM and Product Cost and PLM, Product Cost and Bridge to Nowhere? But it was long time ago and I thought it would be a good idea to reset a conversation about product cost management.

Manufacturing is global. Over the past decades manufacturing companies leveraged low labor cost country to offshore manufacturing and lower production cost. The situation is getting more interesting today. Marketwatch article – Record number of manufacturing jobs returning to America speaks about interesting trends in manufacturing and production cost optimization. Manufacturing companies are coming back to U.S. But this process is much more diverse rather than just moving production back from Chine to U.S. Here is an interesting passage, which can give you some perspective on the process:

Sixty thousand manufacturing jobs were added in the U.S. in 2014, versus 12,000 in 2003, either through so-called reshoring, in which American companies bring jobs back to the U.S., or foreign direct investment, in which foreign companies move production to the U.S., according to a study from the Reshoring Initiative. In contrast, as many as 50,000 jobs were “offshored” last year, a decline from about 150,000 in 2003.

To meet consumer demand, companies increasingly want to make products closer to where their customers are and react to trends and ship faster. Additionally, there are shipping costs and import duties to contend with when a company manufactures the products that it intends to sell into the U.S. market overseas. Meanwhile, such variables as environmental issues, product-quality scandals, and incidents like the 2013 Bangladesh garment-factory collapse or this year’s West Coast port slowdown have made domestic production more appealing. Government incentives and a relatively skilled U.S. workforce are also among top factors.

It made me think about increasing interest for diversified cost management. The decision about manufacturing depends on many factors and trends – market, demand, capacities, transportation cost and many others. Small manufacturing firms can use contract manufacturing in different parts of the world depending on their needs, customers, supplies and priorities. It is absolutely important to manage cost in a holistic way that can account for a diverse factors – product design, configurations, component based, labor, transportation, maintenance, etc. Product data and related information can play a significant role to provide new type of product cost management solutions.

What is my conclusion? New trends in manufacturing and diversification of manufacturing options can demand a new approach in product cost management. It is about collecting and managing a diverse set of information about product and other related information forming product cost. To manage volume, velocity and diversity of this information can be a challenging task. This is also an opportunity for PLM vendors and startups focusing on big data and analytics. Just my thoughts…

Best, Oleg

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  • Hi Oleg,
    That’s actually a big part of our activity today. We have one large project in particular where we need to compare product cost for Engineering BOMs (configurable) with their related manufacturing BOM which can be checked on each production site (US, France, Turkey, India, Brazil) depending on the item costs local buyer are entering in their system. It’s quite complexe, but with the right datamodel and the right integrations (we interact with other PLM systems, ERP systems and legacy systems) it works. The customer is step by step reducing the amount of excel files ! (the solution we provide is based on Aras Innovator and Talend for the integrations)

  • Jon Gable

    There were many product cost trade-offs alluded to in this post: environmental impact, maintaining original market intent, manufacturing costs, supply chain logistics, etc. This must be done while the design is constantly evolving for new markets, resolving quality issues, etc. So, most approaches that rely on data integration are faulty even if the synchronization is “near real time”. This is because the data loses its process context. So, the holistic solution you speak of ideally requires big data analysis and execution of all these processes with frictionless interoperability, which usually suggests a “single platform” approach.

  • I quite disagree with you. System integration does make the data lose its process context. if the whole system is well designed, using ESB, and MDM, you have a clear view on data, and triggers to update cost structures. I don’t know how the argument of “it will work better with a single platform” can stand.

  • beyondplm

    Jon, Actually, I don’t see how everything you said is leading to the “single platform” conclusion. Regardless on the specific data technology, it assumes capturing data from multiple places and data sources. Maybe I’m missing your point… Please advise. Best, Oleg

  • beyondplm

    Yoann, thank you for sharing this example! The type of project you are talking about are usually quite complicated, but can lead to significant cost saving for a company.

  • We don’t have much predictive system for now. Two crucial elements made the project easier:
    – a product that is well structured and easy to configure (with product interfaces rules well respected )
    – project actors who know they want something that works and not a super hype calculator !
    For now, basically, any ECN (on two states) or any cost update is pushing an update and cost roll-up calculations.

  • beyondplm

    Yoann, Got it… thanks for sharing!

  • Another interesting topic to discuss: you mention, “Manufacturing is global”.
    Yes, you are right of cause. Nevertheless,
    manufacturing is local as well: each site in each country has its own specific
    machines, materials, logistics and legal things. In some cases one virtual part
    is manufactured on different sites using different machine code etc.
    So manufacturing
    is “global and local“ or maybe even better “globally local”. I think it is a
    nice thing for PLM/ERP concepts: how to design a virtual part in PLM and define
    local production on different sites in different ways. Each site will have of
    cause its own “as built” documentation as well J.

  • beyondplm

    Aleksander, you’re absolutely right. This “local” environments usually impose significant level of complexity and integration in PLM space. The most typical is when PLM system is integrated with multiple ERP environment or supporting multiple manufacturing sites in a single global ERP. The situation with independent CMs can lead even to higher level of complexity. Thanks for your comments! Best, Oleg