What does Precise mean?
The easiest way to understand precision is to understand archery. Everyone starting out in archery wants to hit the center of the target. The center of the target is what many people call “accuracy.” However, accuracy is not the primary concern of an archer - it is Precision. For the archer, "Precision" is the ability to group shots in a tight cluster over and over. Accuracy is about the distance your arrows are from an arbitrary target, but precision is about consistency, repeatability, and the ability to understand how you got there (see figure below). Any archer or marksman knows that once you have Precision, achieving accuracy is not a huge problem. However, achieving accuracy without Precision is nearly impossible.
This is not a new concept. Archers have known this for thousands of years; in the late part of the Twentieth Century, manufacturing learned this lesson through the efforts of Taguchi, Box, Hunter, Devor, and other advocates of Statistical Process Control (SPC). In SPC, people often talk about “draining the water” in so that you can see the rocks and throw them out. The same is true in Enterprise Cost Management; it requires a precise method of calculation to make progress in truly understanding cost, not unrepeatable expert opinion or black box comparative quotes.
There is another point of about Precision that is important, as well: the target at which you aim. To be Precise, the cost assessment should be targeted at the costs that can be controlled, i.e. True Economic Cost. This is the true cost in physical resources (material, time, etc.) at current fair market rates and prices for manufacturing something. Trying to blindly match the cost of quote, an out-of-date historical cost, or a cost calculated using bad measurements or guesses is a refractive lens that obscures where the real bulls-eye of the True Economic Cost target is.
How does aPriori provide a Precise cost assessment?
- Physics Based Mechanistic Models – aPriori’s models of cost are based on the physics of the manufacturing processes required to make a component or assembly. Because these models focus on extensible quantities like time and material utilization, they assess cost aiming directly at True Economic Cost. These models provide a repeatable cost, no matter who is using the system. The cost in physical resources for a given part provided by a Mechanistic Models only change when a real change is made in the manufacturing environment, such as a new machine, technology, or way to reduce waste.
- Provides Cost Models that configure to your accounting rates– aPriori allows you to build Virtual Production Environments that contain your latest material, labor, and overhead rates so that any user has the most up-to-date information at their fingertips and every cost is calculated using the same information in the same way.
- True-Cost Convergence – aPriori is specifically designed to take advantage of new information whenever it becomes available in order to converge on the True Economic Cost of your product. aPriori will always provide a precise and deterministic cost. However, the cost assessment of a product should obviously change and more closely approach the True Economic Cost as assumptions about the design, manufacturing plan, and sourcing strategy are solidified.
Why is knowing cost Precisely so important?
- Gain confidence in the consistency and reliability of your cost assessment – It is important to know that the cost of the product in a repeatable and understandable manner. This consistency provides the ability to make relevant cost comparisons between different alternatives for the product.
- Separate cost noise from the True Economic Cost – There are many factors that cloud the True Economic Cost from suppliers low-balling quotes to try and “buy the business” to stale data that was part of the original calculation of the cost. aPriori, as a Precise method of calculating cost, is able to strip away the noise and reveal what the True Economic Cost is. This is the cost that you can actually control and is useful when making trade-offs, negotiating with suppliers, and evaluating the true impact of cost reduction activities.
- Standardize your costing methods and process for Product Cost Management – One of the biggest problems today in trying to reduce cost is that everyone is using different methods and data to calculate cost. Engineering, manufacturing, purchasing, accounting, and finance, may all have their different methods for assessing product cost. Not only is this a waste of time for the organization as a whole, but more importantly, it causes confusion and missed opportunities for cost reductions.
- Make your Cost Targets – When you know your costs Precisely, and in a Predictive, Real-Time way, you are able to clearly see where you are with respect to your product cost target. And, when you know where you are and where you want to be, you can plot your Enterprise Cost Management path.