CAD, PLM and Product Cost

CAD, PLM and Product Cost

Cost is important. Period. About 70% of product cost is defined during the design phase. So, to have PLM helping you to predict a product cost and drive it down can be a very important feature and benefit of spending the time to implement your PLM software and set up right processes. However, to get an enterprise view of cost is not a simple task in manufacturing companies. Last year, I wrote – PLM and Enterprise View of Product Cost. Since then, I had few very interesting conversations about a product cost related issues.

Who is working on this?

I wanted to find recent examples of tools (CAD, PDM, PLM) dealing with cost calculations. I found few examples and references of PLM vendors doing “costing work”. Agile, Dassault, Siemens did some work. However, I didn’t find visible public references related to the cost integrations into their product suites. I know two vendors – aPriori and Akoya, focusing on cost issues. I thought, PTC InSight is planning to provide a solution for cost visibility. However, for the moment, more focuses on environmental problems.  The following two videos present slightly different aspects of cost calculation.

SolidWorks World 2011 Demo Preview (thanks deelip.com for capturing this video during SolidWorks World 2011) presents future SolidWorks cost calculation capabilities. The important element of this implementation is the level of integration of costing functions into the design environment.

Obviously, SolidWorks’ focus is on part manufacturing-design aspects. SolidWorks solution is not up to solving enterprise cost scenarios.

Then another example comes from aPriory video. aPriory is a company developing Product Cost Management software. Watch the following video to get a glimpse of understanding how stuff works.

This video made me think again about integration with various tools and information related to the cost. This example is more focusing on multiple aspects of product cost and not limited to “design environment” only.

Cost: Important, but NOT transparent

I can hear two voices related to the cost. One – cost is (obviously) important. The ability to control cost is absolute. The enterprise software (in general) and PLM specifically needs to solve the problem of cost analysis and visibility. Second voice says, cost is not transparent in an organization. The transparency of cost is not obvious and there are multiple interests a company to make cost transparent. Part of them is coming from work with suppliers, part of them is coming from manufacturing.

PLM Software Fails, Excel Wins

I can hear “Design for Cost” more and more often. At the same time, I don’t see products in this space demonstrating strong functionality and capabilities to solve costing problems. When talking with customers, I’ve heard about the complexity of the costing problem and inflexibility of solution. Most of the solutions, I’ve seen relies on our “PLM buddy” – Microsoft Excel to solve any problems.

What is my conclusion? I think, costing is another place where MS Excel has huge market dominance. Software vendors slowly, but started to understand the importance of vertical cost integration. The solution in this space is not obvious and requires significant effort in data integration. So far, I’ve seen little activity in this space. Just my thoughts…

Best, Oleg

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  • Oleg,

    yes, calculating product costs is an important point. Integrating such functionality and somehow competing with Excel is not easy, but the benefits through integration with other product data are more than promising. Based on customer requests we recently launched a product costing module as part of the PLM platform CIM DATABASE, see
    http://www.contact-software.com/news/archive/news2010/P30-09-10UK

  • DiscussPaul

    Oleg,
    often I heard customers stating their interest at capturing some cost information at the design level, but then they stop short of integrating with an MRP for the actual production cost, afraid this information would appear on the engineer’s/designer’s scope (yes, we know there exists views in many PLM to prevent this information from displaying!).
    Currently, Enovia does offer a solution for cost analytics, but many customers are put off by the complexity of such offering (which requires the knowledge of a detailed BOM). Users are left with a sneaker net approach to integrate CAx costs (which vary continuously as design progresses) and a cost model (Excel, anyone?) that becomes detached from the reality of things. This opens the door to a plethora of opportunities to perform data integration, either continuously or on-demand.

  • Sporter

    Oleg,
    Agile has had a Product Costing Module for quite some time and they also can drive attributes back into CAD data to provide engineers with cost visibility. I suspect other PLM tools offer similar capabilties. While I agree that Excel is probably still the tool of choice for a lot of companies. PLM does offer solutions in this area. A number if my customers use PLM for cost tracking and as you point out having this data early in the deign process is critical. I am sure the PLM vendors could do a better job in this area but I am not sure it is as bleak a picture as you paint in this article.

  • beyondplm

    Roland, Thank you for this comment and link! I can see a very high customer demand for “costing” solutions. Best, Oleg

  • beyondplm

    Paul, Thanks for commenting! I agree with your observations. To put a really good solution is a complicated task. It is requiring deep integrations with various sources of information – CAD, PDM, PLM, ERP, etc… Excel simplicity wins, but I’m not plain Excel solution is good enough. I also see lots of opportunities in this space. Best, Oleg

  • beyondplm

    Stephen, thanks for sharing your observations! I didn’t want to be intentionally bleak. What do you think is critical to do to improve “existing” PLM solutions in this area?

  • In the mechanical manufacturing world, in order to get true costing in PLM you need tight integration of manufacturing software packages, this way when you create the design say in Inventor you can then process this in EdgeCAM and then apply cycle times and get true cost to machine component, couple this to the weight/mass and materials costs, you’re way to managing costs..in my option

  • This is a topic we cover with almost every private label retailer and brand owner we speak with at Arigo. The situation we most often see is that the retailer purchased a PLM solution within the last 1-2 years and are still looking for the enterprise visibility into costing. For many of customers including JCPenney, Timberland, Staples, The Home Depot and many others- they understood the functionality they were getting with PLM and knew they were not getting costing functionality, and yet they didn’t need it because Arigo provides them with a robust system. They have all been using Arigo’s suite of sourcing and trade management solutions for over ten years to capture costs, understand and analyze costs, and estimate down to the penny of what product will cost from the time it is a sample to when it arrives at the domestic port. Take a look at the recent Gartner Research and Apparel Magazine report on PLM’s next frontier into Sourcing http://bit.ly/hCw3w0 …it seems from their research not many PLM providers are currently providing visibility into costing, and it appears to be 1-2 years out on roadmaps used for the study.
    The question becomes, should PLM venture deep into costing if there are other solutions available that have the experience and the breadth of knowledge in that area? Go for the integration. Many global trade management solutions providers already have this functionality built-in. The point is, its time to get off of the spreadsheets and look to technology to replace the tedious costing process. If the most important part of costing begins during the design process, what happens with that information as it travels through the supply chain? Does PLM include estimates for duty and tax? What if product misses the ship date..does PLM reconfigure the new cost? Most often it does not and perhaps it shouldn’t lie in the hands of the PLM solution. Unfortunately, by the time you wait for PLM to include this functionality- and get it right- your competitors who see the value of integrating costing throughout the supply chain will have pulled ahead- and are most likely making more educated sourcing decisions as trade regulations get tighter and commodity costs rise.

  • Jens Krueger

    Oleg, you might want to look at the Enterprise Costing solutions from Facton: http://www.facton.com/en/

  • beyondplm

    Mike, thank you for commenting and sharing your opinion. I agree, the most important piece of costing solution is the ability to be integrated with existing systems in the company. Best, Oleg

  • beyondplm

    Dear Arigo. Thank you for sharing your insights. I can see your point about PLM standing behind schedule to introduce costing solution. I found interesting you mentioning PLM as a single system. However, in most of the successful cases, I’ve seen PLM as a strategy driving deployment of multiple systems and stitching them together by a process oriented implementations. Does it make sense to you? Best, Oleg

  • beyondplm

    Jens, thanks for sharing this link! Best, Oleg

  • Hello Oleg!
    First comment: Product Cost estimates are clearly in the field of PLM in my view
    Second comment: several approach may exist based on the business (triggered by manufacturing or triggered by purchasing, or …)
    Third comment: not sure product costs estimates can be managed based on the same data model as engineers managing EBOM and CAD, nor MBOM.
    I have seen that there exists a cost model for a given product which is different from the product model: not exactly the same data, the same perimeter of hypothesis. Costing people are managing high level hypothesis, which are not managed by engineering nor manufacturing people, which are more focus on real products and production means.

    So for me 2 methodologies/application are needed, but link between both are needed, in order to verify at the end that the estimates were correct.

    If someone has already successfully integrated engineering, manufacturing and costing models, then I would like to meet those guys.

  • Jim Sweeney

    Oleg,
    You are correct that PTC InSight will be releasing a cost application in the near term. The focus of the application will be on rolling up cost estimates for different BOM configurations throughout the product lifecycle. We will also enable the use of different cost models for parts so that different what if scenarios can be reviewed.
    I agree with a previous comment that customers are trying to estimate cost very early in the design, often before CAD geometry even exists. This is often done with excel which does not easily handle constant change to the BOM or BOM configurations. This is why I think it is critical to have the cost estimating solutions connected to the PLM system.
    As for “Design for Cost”, I feel to enable this, you need to be able to understand the different trade-offs with other product requirements such as weight and compliance. Decisions relating to product cost cannot be made without considering the impact to these other critical requirements. With InSight, we will enable visibility across these different requirements.

  • Adrian M.

    Oleg,

    First, great article!

    During development we all want to obtain accurate part costs. Accurate part costs drive accurate bills of materials. And accurate bills of materials provide a more realistic picture of what that product is going to cost going into production.

    Unfortunately we know from experience that costing a product during development is not a perfect science. And many times we spend countless hours aiming for preliminary cost accuracy, only to see a different price (usually higher) as the product goes into production.

    Here are some other culprits that also impact pricing:

    • Mfg/Source Location (i.e.: prices are different depending on country)
    • Raw Material Market Price Fluctuations (i.e.: does steel cost more this month, than last?)
    • Shipping / Expediting / Duty / Drop-Ship Costs
    • Vendor Supply / Demand
    • Too many ECOs (frequent part changes = higher part cost)
    • Vendor Mark-Up / Profit
    • And others..

    These costing software tools are a great start, but in reality every company has their own unique way to cost products and prices are often impacted by so many other uncontrolled variables.

    Maybe what the software companies can add is the ability to also mine and analyze historical quotes/PO pricing for similar parts. Then use this historical data as a supplement to assist improving the accuracy of the new part price.

    Thanks again for your great articles Oleg!

    Best regards,
    Adrian

  • beyondplm

    Francois, thank you for sharing your insight! I agree ‘costing model’ is probably an expansion on top of the existing models that exist in engineering and manufacturing today. Actually, I’m also looking for people that made or thinking about costing models in manufacturing companies? Do you know if somebody developed such models and tried to standardize this space? Do you think cost model can be unified similar to Bill of Material model? Best, Oleg

  • beyondplm

    Jim, Thanks for your comments! I think you made an important point clarifying dependencies between different aspects of decision making during product development. Compliancy and regulation become a significant factor, and it need to be taken into account. Combined criteria (cost, compliancy, weight) is always a challenging factor. Best, Oleg

  • beyondplm

    Adrian, thanks for your insight! I agree, cost structure is complicated and in many situations not clear even for company insiders. To mine historical data is a great idea! Best, Oleg

  • Charlie Stirk

    At CostVision we have successfully integrated several engineering, manufacturing, and costing models. Contact me at stirk@costvision.com for more details.

  • beyondplm

    Charlie, thanks! will do… Best, Oleg

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