NACCO Materials Handling Group: The Story of an Unexpected Discovery for Cost Management
NACCO Materials Handling Group (NMHG) designs, engineers, manufactures, sells, and services a portfolio of materials handling equipment that is among the most comprehensive in the industry. Headquartered in Cleveland, Ohio, they are known for the Hyster® and Yale® lift trucks, two of the most successful lift truck brands in the industry. Their products cover hundreds of end-user applications in more than 700 industries, helping their customers increase productivity while lowering operational costs. Products range from narrow aisle warehouse trucks to the toughest cargo handling equipment. With such diverse yet complex product lines, managing product cost is no small feat.
At NMHG, development came up with one cost, but production came up with another. With big gaps like this, budgets were difficult to predict and manage. Rick Goldsmith, Manager of Corporate Manufacturing Engineering and Tooling, began looking for a solution. Almost by accident, Goldsmith came across the Product Cost Management solution offered by aPriori. He quickly realized the solution could help them in several ways to better manage their product costs.
NMHG started their implementation by using aPriori to setup a virtual factory for sheet metal manufacturing in one of their plants in Mexico. They then compared the cost results from aPriori with the actual cost. “We got unbelievable accuracy,” says Goldsmith. “Estimates from aPriori were within 1% of the actual cost.” This success provided the needed proof for the technology.
With the technology proven, they were ready to look at the design process. Previously, during design work, it was difficult to get any insight into cost. An engineer might have questions such as, should I make this part a casting or a fabrication? What happens to the cost if the hole is this big? Getting accurate cost information required sending a drawing to procurement and waiting six weeks for an answer, far too long to be an effective means to guide engineering decisions. Since implementing the aPriori cost management solution, they can get that cost back when they need it.
Engineers also get better insight at the feature level. Sometimes part features cost way more than one would think. Now, when this happens, they have visibility into it so that engineers can make design adjustments. This means better cost decisions from the very beginning.
“We find that 70% of the cost is driven through design,” says Goldsmith. “If you get the cost right the first time, you do not have waste efforts going back later to take cost out.”
NMHG has now rolled out the solution globally, but as needs vary regionally, they have the flexibility to apply the tool to meet the variety of needs. Some groups use it to look for more directional information to get a general feel for what the cost will be. In another region, they use the results from aPriori to understand the should-be cost of supplied components. If quotes from suppliers come back higher than expected, they can have a fact based conversation about why and if need be, look for a new supplier.
Goldsmith advises that leadership has been one of their biggest success factors. When there is support from leadership, people use it. They also find their younger engineers are especially excited to use the aPriori solution. They want to play with it and the thought of coming up with a cost by hand is not appealing.
Goldsmith particularly likes the speed of getting answers to help them improve margins. “The aPriori solution helps us raise the right questions to arrive at a more cost effective product. Sometimes it might even suggest a manufacturing process no one had thought of that helps us with our margins,” comments Goldsmith. “We are a margin driven company and when we improve our margins, we all win.”