Navigating the Cost of Increased Government Regulations for Automotive Manufacturers – Part 2: Selecting the Best Route to Cost Reduction

Rick Burke April 2, 2015

This is the second in a series discussing the impact of new government regulations designed to increase automotive fuel efficiency and tighten emission standards. In the first post, Roadblocks to Profitability, we looked at some of the cost challenges created by the new regulations at different stages of the product lifecycle.  In this post we’ll look at different ways to overcome them.

Finding the Right Cost Detours

The cost challenges created by the new 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.

These are proven ways for automotive manufacturers to manage the cost impact of these new regulations.  In my next post, Eight Examples of Enterprise Product Cost Management in Action, I’ll share specific examples of how several leading automotive OEMs and Tier 1 suppliers are putting them into action.

Want to learn more about these issues and strategies to offset their impact?

Download the whitepaper, How Automotive Manufacturers Can Navigate the Cost of Increased Government Regulation.

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