Navigating the Cost of Increased Government Regulations for Automotive Manufacturers

Laws enacted in recent years in both North America and Europe require automotive manufacturers to meet increasingly stringent standards for fuel efficiency, vehicle emissions and vehicle weight on many new models. These rules and regulations are different in every major economy, but to date, they have been instrumental in reducing regulated emissions – and that is very positive. At the same time, though, they have added new cost burdens at a time when automotive profits are already under significant pressure.

Impact Across the Product Lifecycle

The new regulations are not limited to product design. They have a big impact across the entire product lifecycle – forcing manufacturers to revisit design concepts, re-tool manufacturing processes, find new suppliers that can meet the new requirements, insert checkpoints to ensure compliance and manage a whole new set of factors that threaten to drive the cost of their products up and profits down. For example:

  • Manufacturers are now evaluating and funding multiple product design alternatives to find the best, most cost-effective solution to meet new requirements. These decisions are often made with limited cost data available at the front-end of the design process and do not take into account resource availability, design cost and supply chain capacity.
  • Many of the required adjustments to vehicles involve additional electromechanical systems and computer software that are harder to prototype and QC than mechanical systems. This often means integrating information from a wide variety of design tools such as MCAD, ECAD, Software, Tech Pubs, etc.
  • The capital investments associated with retrofitting and re-tooling existing facilities to meet new requirements are significant. And they vary by geographic market adding further cost and complexity.
  • Coordinating product development and manufacturing efforts between internal teams from different cultures, languages, time zones, and information technology infrastructures is also extremely challenging and can negatively impact time to market and result in costly rework in engineering or excessive scrap costs in manufacturing.
  • Most OEMs and Top Tier suppliers are outsourcing more of their detailed design and manufacturing to partners located in geographies far from their own. Managing engineering changes and costs across these extended supply chains adds additional levels of complexity and difficulty.
  • For Tier 1 suppliers, negotiating price and product cost on a complex mix of products flowing through the supply chain is also extremely challenging. This makes it more difficult to provide timely and accurate response to RFQs from OEM customers.

For most major automotive OEMs and large Tier 1 suppliers, cost data is scattered across the entire organization in PLM, ERP, SCM and MES systems making it very difficult to get a single consistent view of product cost. Different departments and product groups each have their own, often conflicting, cost goals and agendas. As a result, manufacturers often discover too far along the product lifecycle that they are already unprofitable.

These companies typically have dedicated cost engineering teams; however, these teams only have the bandwidth to analyze a small percentage of the new parts designed by engineering teams. And most design/engineering teams don’t understand the real cost consequences of the design tradeoff decisions they make each and every day.

They focus on form, fit and function, and are at best peripherally concerned with cost implications. As a result, engineering changes are discovered late in the design process causing expensive rework. Likewise, failure to involve suppliers early in the design phase results in sub-optimal product design and increased costs as well.

All of these circumstances make it even more difficult for automotive manufacturers to respond to these new requirements in an effective and cost-efficient manner.

Selecting the Best Route to Cost Reduction

The cost challenges created by government regulations are significant, but not insurmountable. Below are a set of best practices being leveraged by a number of leading automotive manufacturers and Tier 1 suppliers. Some of these are specific to managing these new regulations and others are applicable for any automotive company looking to improve product profitability and streamline their product cost management processes.

  1. Design for Supply – By incorporating suppliers earlier in the product design phase, automotive OEMs and Tier 1 suppliers can leverage the expertise of their extended supplier community, negotiate better pricing and delivery terms and ultimately reduce Time to Market and overall vehicle development costs.
  2. Exchange Product Data with Supply Chain Partners – Related to the above, automotive vehicle makers are investing with varying levels of commitment in the advancement of an industry standard neutral file format for exchange of product model data; e.g., STEP and JT.  These efforts will make it easier for manufacturers and suppliers to collaborate on product design, manufacturing process and materials, streamlining response time for cost estimates and RFQs and providing greater predictability on cost and profitability.
  3. Deploy Enterprise-Wide Product Lifecycle Management (PLM) Systems – Implementing a single enterprise infrastructure for all intellectual assets of a product development program can lead to a significant reduction in overall program expenses related to legacy IT systems.  It also enables effective communication with suppliers and is critical to eliminating design rework and manufacturing scrap.
  4. Make Product Cost Management an Enterprise Focus – Leading automotive companies are complementing their PLM systems with enterprise-class product cost management capabilities. These systems provide many critical advantages across the product lifecycle that PLM systems are not able to satisfy; for example
    • Automated quote generation leveraging solid CAD model designs – to quickly and accurately generate detailed cost estimates.  These can be used by engineering teams to evaluate different design alternatives and tradeoffs as well as with suppliers to create a highly detailed quote for their customer in a fraction of the time of traditional manual estimation methods.  Some manufacturers also use this capability to create fast and accurate “should cost” estimates for products and parts being outsourced to supply chain partners.
    • The ability to track the on-going product cost across the entire product team – to bring a new vehicle program to market and constantly be able to determine profitability. Enterprise-class platforms enable users to integrate all the cost data scattered among different enterprise systems into a single collaborative platform, accessible by everyone in the product development team – design, engineering, sourcing, cost engineering and manufacturing.  These teams can all quickly and accurately generate cost estimates, identify potential cost issues early on and significantly improve collaboration on cost and product profitability in the design of complete vehicles and complex vehicle systems.
    • The ability to calculate and manage weight values – to ensure that vehicle development projects achieve weight targets that ultimately translate into achievement of critical fuel efficiency and emission objectives.  Design teams can set specific weight targets, and use their product cost management platform to manage a product development program to a specific goal.  Each and every time a design changes, the team can quickly understand the implications to the weight of the product.
    • The ability to cost entire Bills of Materials (BOMs) and complete product assemblies – to enable program managers and engineering leaders to quickly evaluate cost of trade-off decisions for global vehicle configurations and module configurations.  This includes different product variants as features are added and subtracted based on price elasticity of different geographic/consumer environments.
    • The capability to generate detailed Tooling BOMs – to help OEMs and Tier 1 Suppliers understand what tooling should cost so that they can conduct more effective negotiations with suppliers.

Examples of Enterprise Product Cost Management in Action

  1.  Large US-Based OEM

Leveraging automated costing capabilities, this OEM dramatically expanded the volume of parts/tooling that its Tooling organization can cost.  This has reduced the cost for Tooling used in production of stamped and plastic parts.

Batch costing has automated the daily costing of thousands of components, including tooling, to help quickly identify the difference between tooling vendor quotes and the calculated “should cost” using CAD designs and intelligent cost models.

  1.  Automotive Equipment Manufacturer in US

With the benefit of bulk costing analysis of plastics used in North America, Europe and Asia, this company identified $2.5M in potential cost savings. To date, it has realized $950K of that.

  1.  Luxury Vehicle Manufacturer Expanding from 2 to 3 Product Platforms

This manufacturer’s Value Engineering team is using enterprise product cost management to identify components and systems that are not cost optimized, and improve profitability as vehicle production ramps to volume.

Numerous value analysis projects have also identified significant savings; e.g., examination of design alternatives for three (3) simple bracket components yielded a potential savings of > €50,000; converting a metal casting to a plastic part identified > €6,000,000 in savings.

The company also plans to provide its Engineering team with detailed feedback on actual cost estimates vs. target cost on new vehicle production programs using a batch costing utility integrated in its PLM system.

  1.  Automotive/Transportation Equipment Manufacturer in the US

This company deployed enterprise product cost management with its Sourcing team and quickly identified $600K in savings working with just two of its large suppliers.

  1.  Tier 1 Supplier of Automotive Seating and Electrical Components and Distribution Systems

Using enterprise product cost management, this Tier 1 supplier is helping its Design and Purchasing groups better understand cost tradeoffs, ultimately driving down cost across all product lines.

It is also helping its Engineering and Cost Engineering teams track and collaborate on project costs to meet target objectives for piece parts and tooling.

The Cost Engineering team is also working with Purchasing to ensure sourced materials and components support the overall cost objectives.

  1.  Automotive Equipment Manufacturer

By generating detailed cost estimates for stamped parts, this equipment maker identified a better manufacturing process that will save it $500,000.

  1.  Global Tier 1 Supplier of Automotive Driveline and Drivetrain Systems

This company’s product cost management system provides design engineers with a tool that enables them to meet target cost on new product initiatives by optimizing costs on new designs in their production environment.

It is also looking to use estimates being created during new product initiatives to collaborate with suppliers.

  1.  OEM Supplier Focused on the Production of Metal and Plastic Tooling

This supplier is using product cost management to reduce the time and cost required to respond to customer RFQs and increase the consistency of quotes across estimators.

For low to medium complexity tooling, this company has seen:

Average quote time improved 300%

Cost estimating overhead reduced by 55%

Variations between cost estimators eliminated.

Cost management initiatives like those being deployed above can benefit automotive manufacturers across their entire product development lifecycle by providing greater visibility to cost earlier in the process; facilitating collaboration among cost engineering, product development, manufacturing teams and suppliers across the globe; equipping Sourcing teams with more accurate cost information; and improving business decision making regarding make vs. buy, sourcing and manufacturing/material decisions.

So How Can Implementing a Product Cost Management Solution Help You?

aPriori’s patented product cost management technology platform enables all members of the product team to receive instant feedback on the cost of feature/value trade offs. Watch this video to see how visibility to cost can help you identify and eliminate cost drivers early in design.

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