LiuGong’s aPriori Should Cost Implementation Lowers Production Costs by 40 Percent

Established in 1958 and headquartered in Liuzhou, China, Guangxi LiuGong Machinery Co., Ltd. (LiuGong) is a leader in the construction machinery industry. LiuGong is the first publicly listed company in this sector in China. The company operates more than 20 manufacturing sites globally, employs over 17,000 people, and has five research and development (R&D) centers.

LiuGong’s primary products include wheel loaders, hydraulic excavators, road rollers, forklifts, pavers, graders, milling machines, and various other construction machinery.

LiuGong found that the actual cost of products became clear only after their launch, often exceeding initial targets by over 20%. This discrepancy caused significant production challenges, requiring immediate attention and action to control these expenses effectively.

Further, the company lacked a process-based cost model that could deliver real-time feedback on product expenses during the design phase, leading to greater cost control issues. In early 2022, LiuGong formed a dedicated cost management team comprised of designers, process engineers, cost specialists, and IT experts. Their goal was to create a model that would help reduce the 20% cost overrun by enabling rapid cost estimation and feedback in the early design stages. This approach could also prevent late-stage downstream issues, accelerate launch times, and boost market competitiveness.

LiuGong implemented aPriori’s Manufacturing Insights software to gain accurate, automated, and immediate cost estimates. After discovering that aPriori’s approach aligned closely with the manufacturer’s goals, the two parties formed a joint project team. This collaboration led to the creation of the “LiuGong Master Digital Factory,” a cost model that estimates expenses for various production methods quickly. This digital factory has extensive configurations in sheet metal, stamping and machining, and casting/forging. By selecting the most cost-efficient route, LiuGong defined the should cost as the optimal cost standard.

Should costing calculates a product’s “true” expenses. LiuGong employs these estimates to identify cost-saving opportunities, develop a foundation for effective negotiations, and make informed manufacturing business decisions. Further, aPriori’s should cost capabilities enable LiuGong to assess the expenses of alternatives in production, design, material, and more.

In 2023, LiuGong integrated this cost model into procurement and expense management at its headquarters, with plans for global expansion. This alignment showcases how LiuGong incorporates its strategic vision with the project’s objectives for digital design, manufacturing, and data management.

aPriori supercharges LiuGong’s digital cost management by removing silos between product development, procurement, manufacturing, costing, and other project stakeholders. The platform’s integrated cost-sharing capabilities play a significant role in LiuGong’s supply chain and financial reviews.

For instance, when launching a new product (shown in the image below), previous estimates were often inaccurate, which restricted sales pricing decisions. With aPriori, LiuGong generates highly precise should costs, discovering that actual production expenses were 40% lower than initial rough estimates.

LiuGong now incorporates aPriori in the product design stage, enabling the company to access a complete cost estimate before finalizing a design. This approach allows for immediate, real-time expense comparisons with actionable suggestions for design rework. Previously, actual costs became evident only after product launch, often surpassing expense targets. LiuGong can now determine product costs early in the design process. This helps avoid late-stage, costly engineering change orders (ECOs), reduces development cycles, and elevates design management.

LiuGong plans to extend the use of aPriori’s costing capabilities across various management processes, including product design optimization, lean production, supplier collaboration, and factory investment management. aPriori is set to become a vital solution for achieving operational and financial efficiency throughout the company’s global operations.