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Rick Burke

Cost Estimators: Feel Like Your Ship is Sinking?

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Adopt a Carrier Group Battle Strategy for Product Cost Management

I was recently watching a classic WWII movie about the Battle of Midway.  Somehow the wires in my brain got crossed and a fleeting thought in the background about product cost management strategy collided with my movie observations about carrier battle group strategy.

These two seemingly incongruous concepts are not as radically different as you might think at first.

A carrier battle group consists of an Aircraft Carrier and a large number of escorts, together defining the group.  Escorts may include a Guided Missile Cruiser, Anti-Submarine Destroyers or Frigates and several other specialized vessels.

The entire Carrier Battle Group works harmoniously together to project force and protect the Aircraft Carrier at the center of the group.  The Aircraft Carrier is the most strategically important element of the group as it houses the capability to launch and receive various types of military aircraft, which in turn, have the ability to initiate remote strikes into enemy territory as necessary.

Going it Alone

For many years the strategy of Product Cost Management has been run like an Aircraft Carrier plying through the ocean with no support craft.  In the world of PCM, the Aircraft Carrier is the Cost Engineering/Estimation team.

I can’t tell you how many manufacturers I visit where the PCM solution for the enterprise is based on a small group of highly talented men and women that are vastly outnumbered when compared to their counterparts in design and engineering.  Furthermore, these folks are typically armed with a collection of spreadsheets or a manual cost estimating system that doesn’t even take advantage of modern database technology so valuable cost data can be shared across remote teams.

Strategically speaking, leaving an aircraft carrier unsupported, floating alone in the Pacific Ocean makes absolutely no sense.  It cannot possibly accomplish its mission of defense or force projection on its own.  Likewise, companies should not expect the Cost Estimators alone to be able to accomplish the mission critical task of cost optimizing all the new product designs that flow through the development pipeline.

It’s a Bandwidth Problem

But “wait” you say!  Just have the Cost Estimators focus on the most expensive components of the product design and we’ll fix the rest through value engineering after we go to market.  This is the strategy we most often see at large manufacturers, whether they be in the Defense Industry, Commercial Aerospace, Industrial Machinery, Automotive or High Tech Electronics.

However, here’s the problem with that strategy.  That means that literally thousands of moderately engineered parts are flowing through your product development pipeline into manufacturing that have never been cost-optimized.  This is analogous to somebody blowing a gigantic hole through the side of your Aircraft Carrier with a missile — and your profits just start leaking into the ocean unchecked.  Who would ever let that kind of leak continue without fixing the problem immediately?

Project Your Power Through Technology & Collaboration

The sad part of the story is that fixing the leak and protecting your Aircraft Carrier (i.e., your Profitability) is really not that hard.  You just need to surround that carrier with some fast attack ships to off-load some of the mission tasks.

Imagine a scenario where your cost engineering team is able to capture the most important cost modeling rules and constraints in a software technology platform that can then be leveraged by your designers, engineers, sourcing and manufacturing team (including suppliers).  Take that one more step and imagine that the User Experience of that software has been specifically designed from inception to be incredibly fast and easy to use so it only has minimal impact on their current portfolio of operating tasks that are typically centered around product design, quality and time.

The cost engineers still need to work on the really complex and super expensive components, but now you’ve got an extended team that is actively supporting the Cost Engineering team and driving out all of the other cost related issues in new product designs.  Again, why would you not immediately plug that leak and capture an even bigger percentage of cost savings that can pass right through to the bottom line?

Benefits of Automated PCM

This is exactly what a modern, automated product cost management solution can do for your product development team.  The designers, engineers, sourcing and manufacturing team are your fast attack ships, supporting the cost engineering team which is the most essential element of your profitability team.  With the underlying backbone of a PCM technology platform, the different members of the team can work together harmoniously to estimate and mature product cost throughout the lifecyle as the product design advances. What does this mean?  No surprises!  No submarines sneaking up unnoticed – No late stage cost related ECOs slowing down your product launch trajectory.

Automated PCM systems can be seamlessly integrated into your design environment, leveraging your 3D CAD system models as a primary input element so that end users of the software only have to answer a few basic questions in order to generate a detailed cost estimate.

By leveraging the entire product development team to identify and eliminate cost at the point of origin, you have effectively created your own “profitability group” formation that enables you to achieve the following strategic mission objectives:

  • Design to Cost – set product cost targets before concept and preliminary detail designs begin and monitor progress against goals on a daily, weekly or monthly basis.
  • Design for Manufacturing – modern PCM platforms enable you to very quickly identify & eliminate potential manufacturing issues, long before you ever get to the prototype stage.
  • Avoid Late Stage Design Churn – this is a benefit that derives directly from the two items above. Many engineering leaders are frustrated when they near the end of the design cycle and are weeks or days away from Release to Manufacture when they discover a cost or manufacturing issue that forces an Engineering Change Order.  ECOs are expensive and time consuming, why not put safeguards in place to screen them out before they ever creep into your product design?
  • Accelerate Time to Market – Time is the enemy; anything that negatively impacts a manufacturer’s ability to deliver a product to market on time must be eliminated. Why is it then that so many manufacturers still wait weeks for their purchasing team or a supplier to provide them a quote on a new product design?  This doesn’t make a lot of sense, especially when they could calculate the cost of a new product design right at the desktop of the designer and get that answer back in just minutes.

Conclusion

WWII was probably the pinnacle of naval warfare.  Since then, nearly every single major navy in the world has adopted the Carrier Battle Group (or Carrier Strike Group) formation strategy as a critical element of their homeland defense strategy.

The most advanced companies in manufacturing today are adopting a similar strategy for their Product Cost Management initiative so that they can capture and protect every dollar of profitability available.  Companies that have thoughtfully deployed this strategy include industry leaders such as Spirit AeroSystems, Honeywell Aerospace, Solar Turbines and Whirlpool.

Are you allowing your Aircraft Carrier to float alone, unsupported in the ocean?  Don’t look now, but there’s a giant hole in the side of your product development ship, and your profits are leaking out unchecked!

Want to learn more about how you can implement a more effective Profitability Group Strategy for New Product Introductions?

Download our whitepaper, New Product Introductions (NPI) and Target Costs, or send us an email at productcost@apriori.com

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Comments

  1. Dave Ondrias

    Nice reflection and comparison Rick.

    Posted on Thursday, May 18, 2017 at 11:06 am
    Reply
  2. Randy Altman

    Excellent article and very accurate military analogy.

    Posted on Thursday, May 18, 2017 at 4:04 pm
    Reply

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