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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