Strategic Product Cost Management: Challenges and Benefits
We at aPriori recently hired an independent research firm to survey our customers about their approach to product cost management, use of the aPriori platform and some of the benefits and challenges they face along the way. Conducted by TechValidate, the study collected quantitative and qualitative data from 267 aPriori users in engineering, sourcing, manufacturing and cost engineering roles from manufacturing organizations around the world. The findings revealed some great insights on how companies approach product cost management, key obstacles to improvement and the impact of aPriori’s solution on their product cost management efforts.
The survey respondents represented a wide variety of manufacturing industries – generally indicative of aPriori’s customer base as a whole – with a concentration in industrial machinery/equipment, automotive/transportation, consumer products, and electronics/high tech. Respondents also reflected a range of experience with the aPriori platform:
- 40% had used the platform for less than one year
- 60% had used the platform for more than one year (41% 1 – 3 yrs.; 19% 3+ yrs.).
Manufacturers’ responses reflect some common and difficult challenges when it comes to improving their product cost management effectiveness according to the survey, but most are gaining significant advantage and ROI from their efforts via three primary areas:
- lower costs for both new and existing products
- better collaboration and negotiation with suppliers using more detailed product cost information
- faster cost estimates enabling the evaluation of more design alternatives in development.
I’ve captured the key highlights from the research below along with some of the supporting data and charts.
Gaps in knowledge and skills of internal teams, and time pressures from existing work overload are the two biggest challenges organizations face as they try to improve their product cost management effectiveness.
- 55% of the respondents cited the skill gap while 44% reported already being overloaded with too many other responsibilities to take on new work related to product cost management.
- The product cost management skill/knowledge gap is even more pronounced in automotive/ transportation manufacturers where 67% of respondents indicated it was a key challenge.
(Source: TechValidate. TVID: FA1-1A0-F1C)
- To meet target costs on new product initiatives (66%)
- To reduce the cost of current products – value engineering (65%)
- To improve fact-based negotiation with their suppliers (56%)
(Source: TechValidate TVID: E2B-01C-B50)
Manufacturers are using aPriori for product cost management across a number of different manufacturing processes:
- Stamped Sheet Metal (63%) and Machining (61%) were the most common.
- Casting (Sand, Die and Permanent Mold – 49%), Mechanical Assembly (48%) and Assembly Welding (47%) were also popular applications along with Bar & Tube Fabrication and Injection Molding (both 41%) close behind.
(Source: TechValidate TVID: F55-F31-28B)
Users of aPriori report a significant improvement in their overall product cost management effectiveness after at least one year of use.
- Before deploying aPriori, 70% of respondents reported their organization being at least “effective” in product cost management; only 12% were “very” or “extremely effective.” (Source: TechValidate TVID: 00A-0F3-729)
- After deploying aPriori for at least one year, 83% of respondents reported their organization being at least “effective;” with 32% “very” or “extremely effective.” (Source: TechValidate TVID: 54B-57C-054)
- More detailed insights gained on cost drivers (55%)
- Reduced time to generate cost estimates (55%)
- The ability to evaluate more design alternatives in development (46%)
- Other benefits mentioned frequently include creating a stronger product cost management culture (27%), reducing overall product costs (25%) and achieving target cost goals on new product initiatives (22%).
(Source: TechValidate TVID: 075-692-5ED)
aPriori users report very significant ROI from their efforts:
- 27% of respondents estimate their total potential cost savings identified or realized by using aPriori to be over $2M to date. (Source: TechValidate TVID: 4E4-576-9B7)
- 63% report savings of $500K or more. (Source: TechValidate TVID: C39-C8C-794)
- 23% of surveyed customers are generating product cost estimates at least 10x faster.
- 44% at least 5x faster
- 78% at least 3x faster
(Source: TechValidate TVID: 569-329-8F0)
My analysis of the survey results provided three major insights:
Strategic PCM Represents a Big ROI Opportunity
The survey highlights a big opportunity when manufacturers take a more strategic approach to product cost management. Whether it’s to meet target costs on new product initiatives, reduce the cost of current products, or improve negotiation with their suppliers, aPriori users are seeing huge ROI for their efforts.
Establishing a Cost Culture is Essential
The importance of building a stronger cost culture cannot be overlooked. The availability of accurate, detailed cost knowledge within a manufacturing organization is an important part of driving a higher level of cost consciousness across departments and functions.
Strategic Sourcing is Imperative
Sourcing is a very strategic cost area for many aPriori customers – especially as they outsource more and more of their manufacturing.
The results of this survey are similar to that of a previous aPriori survey of 22 manufacturers using aPriori’s product cost management platform conducted over the Summer and early Fall of 2014 by the Walsh Group.