The Network Effect and its Impact on Product Cost & Cycle Time – Part 2

First, Find Synergies Between Departments

As we discussed in Part 1 of this series , in economics and business, the Network Effect is the impact that one user of a good or service has on the value of that product to other people. When the Network Effect is present, the value of a product or service is amplified as the number of other people using the product increases.

Our first recommendation was that companies look for synergies between departments so that the benefits of an integrated product cost management system can be amplified as the costing process progresses from costing of early design alternatives, into sourcing for make/buy analysis, cost engineering for estimate validation and refinement, and ultimately to manufacturing where machine selection and routing are finalized.

Integrate Enterprise Applications

To truly enable this type of synergy, we introduce our second recommendation for advancing your product cost management deployment. On its own, your product cost management efforts can certainly deliver significant value to your organization.

However, without synchronizing it with your other enterprise automation solutions, your product development team will not be able to leverage valuable data that already exists in other systems (such as BOM structures, catalog part pricing, material stock and pricing information, time standards and other manufacturing process data, logistics costs, etc.).

As new material costing information is entered into your ERP system, for example, it could ripple through to the product cost platform, and everyone on the product team would benefit from this real time update of relevant data. See image below.

synchronize product cost management software with other enterprise solutions

Each of the outer systems above (PLM, ERP, MRP and SCM) contains individual components of cost. By not tying all of the individual parts together, the company is left with an incomplete view of costs for new product initiatives.

Manufacturers looking to gain an edge over their competition are taking a more holistic view of product cost, and striving to implement a culture of cost consciousness across their entire product organization.

Create A Complete View of Product Cost

To achieve this goal, product development teams need to work with their counterparts in the IT organization to define and implement a technology infrastructure that provides one common view of product cost as a design evolves from concept, to detailed design, to sourcing and ultimately manufacturing or assembly. And, it needs to be integrated with other mission critical enterprise systems such as those indicated in the image above.

Check back next week for the final installment of this series where we discuss best practices around extending your product cost management initiative into your supply chain, which is where the maximum leverage of the Network Effect is finally achieved.

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