How to Design to Margin With aPriori & Accenture
Learn how to use aPriori and Accenture to meet your design-to-margin goals. Design to margin (DTM) requires a holistic approach across your entire enterprise. You need:
- A collaborative operating model structure and principles to drive new ways of working between internal and external stakeholders.
- A cultural shift and shared performance metrics to change bad habits and biases in decision-making.
- An investment in digital analytics and data to accelerate collection, transparency, and accuracy to drive profitable decisions.
Rick Burke: Welcome to this afternoon’s presentation from our friends at Accenture. We’re joined by Adam Robbins. He’s the Principal Director of Direct Material Sourcing and Procurement. He’s the lead for North America. We’re also joined by Scott Ellsworth, who is the managing director of automotive and the industrials practice. So today, what we’re going to review is a design-to-margin presentation. There’s a lot of really great information in here. We’ve been partnering with Accenture for quite some time, and they’re gonna talk about how they use aPriori as part of their arsenal to help drive down costs and improve product margins. With that, I’ll turn it over to you, Adam, and you may begin.
What Are Design Margins in the Product Development Process?
Adam Robbins: Thanks, Rick. Appreciate the introduction and the welcome to the conference here. Very excited to be here. In terms of how Accenture thinks about design to margin, really, it’s a way of connecting product innovation, price, cost, and operations. Doing so in a way that’s transformational but also can hit specific interventions across the patch. So, one of the things that we find important is to have a partner like aPriori that can help accelerate and enhance what we’re doing from a product complexity perspective, model-based procurement, think about product and price cost, and also design for manufacturability. The way we also look at it as a holistic approach. So, it’s not a contraditional, siloed way of thinking but from a customer-centric innovation perspective, looking at pricing, looking at intelligent operations, connecting that all together but operating in a very collaborative manner.
AR: So, think about an ecosystem being internal. So cross-functional interaction. Also external, how are we integrating and interacting with our supply base with our customers in a more collaborative manner? Making sure that we’re shifting the waves, that we’re measuring our performance not just to be siloed within specific functional areas but from an enterprise-wide perspective, moving the organization forward in lockstep. Also, using digital analytics and metrics, investments in data in those areas accelerate speed and bring transparency and accuracy to what we’re doing in terms of product costing. So that’s the approach of how we look at it from an enterprise-wide perspective. Let’s talk about a little bit some examples. If we can go to the next page, in terms of transformational activities or transformational plays and also targeted interventions, ’cause some things are just a little bit broader and more encompassing.
Driving Growth Through Transformational Plays and Should Cost Methodologies
AR: And then you have some specific plays that our clients may need help for. So, think about transformational plays. Could be launching a new connected product and doing so in a profitable manner. Mergers and acquisitions are extremely important. So, how are we getting synergies from that acquisition in reducing complexity across one or two, or three different organizations? We see this a lot, too, with very decentralized organizations from a complexity reduction perspective. Taking a zero-based approach. So, you’ll hear Accenture talk about zero base. It’s really that bottoms-up or very similar to the mechanistic should cost modeling. So driving complexity reduction, innovation, reinvestment, and growth, but also digital transformation. Really connecting our functions together, products, engineering, manufacturing, making sure that we’re breaking down those silos that I’ve mentioned before and interacting in a very efficient and sometimes automated manner.
AR: Now, some examples of targeted interventions around commercial structures, right? Again, for smart-type products, having that structure put in place, helping design to margin, also considers teardown capabilities, whether it’s physical or actual virtual teardown capabilities, to get to more of a should cost model perspective. Also, cost simulation is really important here and for negotiations and making sure that they’re fact-based negotiations. So, you can go to the suppliers and have very fact-based and targeted discussions. And ideally, which will evolve into model-based procurement. Scott will touch on some topics around frictionless procurement, which is extremely important right now and allows the teams to focus on areas that are extremely important as opposed to just being caught up with commercial aspects.
AR: Then think about new product development should cost modeling. So, from a cost and engineering perspective, what should the product cost be? And how do we associate pricing with that in the appropriate profit margin? These are all the way or some of the ways that we think about design to margin with our clients from a transformational perspective but also from a targeted intervention perspective. So, I really wanna talk now about some of the sources of value that we see with our clients in projects that we’ve helped co-deliver with them in terms of the typical results that you would see. And think about it, and these are just five different categories or buckets, if you would, but there’s more than this, first one being around innovation and product innovation. Second would be around product design.
Maximize Profitability Through Robust Design Innovation and Material Optimization
AR: And we’ll get into a little bit more detail of each of these. Then, really, how are we helping with sourcing direct materials? Then reduction of materials, whether it’s in the product, a system, or in packaging. How are we optimizing that? So, going back to the left side of the page here from a product innovation perspective, think about increasing unit-based revenue. So, we’ve seen that clients taking a DTM perspective can help increase the unit-based revenue by a quarter or a third. So really substantial. Looking at… Or actually reducing the time to market, cutting in half in some cases, being two times faster to market, which is a competitive advantage, especially now with products, just the proliferation of products and the evolution of getting that to market faster than the competition.
AR: And then seeing aspects of reduction of cost of research from 1%-5% that we’ve seen drive through a DTM perspective. When you think about product design itself, where is it helping? So, we’re seeing in certain areas around manufacturability, serviceability, sustainability, and improvements in those areas. So, looking at overall incremental revenues of up to 10% improvement, seeing profit, operating profit improve 10%-15%, which is extremely important. Modularity about being able to do half of a portfolio work on a modularity or modular basis, and where can you reuse components? So, we’re seeing 10% or more ability for component reuse, which is really part of that product complexity. When we’re looking at the actual reduction in functional cost around manufacturing, engineering after sales of 20%-30% are some of the results we’re seeing.
AR: And also reducing in half the cost of non-conforming quality, which is extremely important. So, reduction and rework, and basically, first-time quality, is increasing with this type of approach. As it relates to sourcing direct materials, the ability to put more products in parts that have underlying commodities that are indices, have indices, putting them onto the appropriate indices where we’re focused more on the value add of the product. What can we do for increased features? Sometimes less features, but designing the product, putting in a manufacturing perspective, and spending less time on what we’re gonna talk about is that frictioned procurement, spending less time on manually training changing prices. But having that automatic flow through, and probably most importantly, is what it does to the bottom line.
AR: So, we’re seeing 5%-15% cost reduction or cost savings in direct materials, which directly hits the bottom line, dollar-for-dollar, where some other areas it doesn’t. So, it’s extremely impactful. Think about the material and product material rationalization. If you have half or three-quarters of the designs of your products using standard design, that helps get it to market quicker. It actually helps with the reduction in price and being more competitive in terms of, from a price perspective, a cost perspective in driving more profitability for an organization. Also, in terms of parts rationalization, if you use design to margin, if you have a complex portfolio, which a lot of clients do or a lot of organizations do, especially on a decentralized multi-geography basis, it’s helping to drive that. And we’re seeing a 10%-40% improvement in parts rationalization.
AR: Also, cost reduction, which aligns with direct materials as well, up to a quarter of cost reduction, is being supported with DTM activities, policies, and applications. Packaging optimization is extremely important, too. Now we’re spending a lot more time where we’re getting a lot more products that are not necessarily coming from stores that are brick and mortar, but there’s a lot more corrugation, there’s a lot more paper, there’s a lot more plastic in the system. How can we design our products to be more… Effective that it helps with brand reputation, also helps with cost of goods sold, having a reduction directly into the gross profit. And then, even more importantly, how can we consume less of the packaging material, whether it’s paper or plastic? And we’re seeing an important amount of product… Not increases but decreases in the utilization of paper and plastic.
AR: So, these are just an example set of areas and case studies that we’re seeing with our clients. Utilizing a design-to-margin approach is driving value in terms of profitability, and using complexity reduction is extremely important. So next, we wanna talk about when can you use a design-to-margin principle. When is it applicable? If we can go to the next slide. And the answer is that it’s applicable throughout the lifecycle, the product lifecycle. Think about it from concept to end of life. Everywhere in between, design to margin can play an impactful role. So, on the screen here, we have a lot of detail, and I’m not gonna go into all the detail, but I wanted to touch on a couple of the areas. If you think about concept portfolio management, historically, there’s been poor product portfolio design and decision-making.
AR: The idea, and the concept, is to move forward with increased part component reuse, improving on complexity and reducing complexity from design systems engineering. So, seeing a disconnected bill of materials and the inability to effectively and quickly update with a part number change or a change notice, how do you actually bring that for a quicker improvement as opposed to just being disconnected in a lagging system? Supply chain integration. And this is extremely important right now if you think about all the variability that is happening in the supply chain; it’s ubiquitous, it’s across many different commodities, and it’s getting more predictable with demand, and it’s really allowing standardization, a better understanding of the bill of materials and explosion bill of materials so we can better forecast to the supply base. Then they can more effectively meet the needs of the customers. Think about simulation and virtual prototypes.
AR: A lot of organizations and design teams are challenged with high new product introduction in lead times to bring products to market. Think about on-time deliveries, improving that, having a cycle that is… You can have an inner cycle that is more compressed than historical lead times and challenges with new product introduction and design processes. So, manufacturing and engineering. So, poor control and assembly costs and testing costs. Think about all the change management that goes along with that. How do we control that better? And it’s really having a better understanding and control over the bill of materials for more real-time, cross-functional collaboration to make sure that there is that connectiveness across what we’re doing in our engineering disciplines. Quality disciplines, procurement, and connecting through to sales as well. ‘Cause that’s extremely important. Production quality, that’s in terms of lack of change management and integration. And then product launch.
AR: This is very similar to what was mentioned earlier with new product introduction, making sure to get out of the paradigm of missing project product launch dates, especially there is that velocity of products that are in the market and product life cycles aren’t as long as they used to be. Making sure we hit those specific areas and doing so through a digital twin-type environment, whether it be a digital twin and supply chain, whether it be digital twin and manufacturing. But creating a scenario or simulation environment where you can look at more rapid prototyping, look at understanding what will work faster as opposed to the historical way of doing that. So, another one that is important is moving from more reactive maintenance to more proactive maintenance, a seamless transition into what we’re doing—so single-minute exchange of dies. Having things of that nature be more prevalent.
AR: Not having to wait for machine downtime, especially where demand’s not a challenge for a lot of customers and clients right now, but it’s actually getting the materials in, making sure that you have the appropriate TRS and capacity, and uptime. And really important as well is how do we handle end of life? How do we retire products? Historically, it’s been a bit of a guessing game for some organizations. And that guessing game can lead to excess inventory, it can lead to obsolescence, which is costly, and it hits the bottom line. Moving that into more of a closed loop environment, properly planned end of life for sunsetting of products, and then moving into what the new product is. Making that transition from old to new and then the crossover point. All across the continuum of a product cycle, design to margin is extremely important. It’s applicable, and it can be utilized across. I’m gonna hand it off to my colleague Scott Ellsworth, who is gonna talk a bit about how we can use tools such as aPriori to help us actually accelerate and improve. Scott, over to you.
Scott Ellsworth: Yeah, I’ll take a different spin or maybe project forward what I think is the next horizon—a really compelling use case for a digital twin solution like aPriori. And, clearly today, there’s significant value in leveraging aPriori and these digital tool sets for design to margin, product transformation, value realization, all of the elements of the product life cycle that Adam talked through from concept to retirement. What we’re evaluating now, having conversations with our clients about now, how to extend the utility of this digital twin, is in a couple of really unique areas. And you touched on them, and maybe I’ll extend upon them. What we think the next generation of apps and use cases for this is for what we might refer to as model-based sourcing and, perhaps beyond that, model-based sustainability. We’ve shown here what if you can remove the friction from your sourcing and procurement process.
SE: If you can facilitate through a digital twin, a more strategic relationship across the value chain and the supply chain, and generally simplify the overall process of onboarding a new product, new product introduction into the sales organization. Sorry, the purchasing organization. We talk about this as button-click sourcing. This, as an application, is a really novel extension and the future of procurement and supply chain. I’ll extend on this and then describe what we think and how this might also apply to sustainability. If we look at the process today, suppliers are onboarded. There’s typically an exhaustive contracting process. Several iterations, lots of manual data requests, lots of commitments to manpower used, material weights and measures, cost center detail, details on margin, labor rates, etcetera.
SE: The supplier, the vendor is contracted, and the next iteration, it’s done all over again. Variation A, B, C, and D all require or perhaps today leverages this very serial contracting process of going back through the detail, negotiating a particular price, contracting with a vendor, and then waiting for the change control and the change management and the change request on the price. So, using a digital twin like aPriori, once that supplier selection is made, the customer and vendor supplier walk the plant. They align that manufacturing model, that digital twin using a tool set like aPriori, and then contract on the important bits. What is the agreed margin given for this particular commodity or product? What is the scrap allotment? What are the improvement year-over-year targets? But once that model is established, any subsequent products that fall within this same digital twin model are button click easy.
SE: And vendor and customer agree that as they send in the engineering models, the tool will convert that into a manufacturing model, which then becomes the source of truth for the commercial model. Extending that further to applications as we move into a world of tiered sustainability, tracing documentation of the carbon footprint of the full supply chain. What inelegant means of tracing the environmental impacts of the tiered products by using that same manufactured model, the energy consumption model, the model that describes the use of volatile compounds or recycled materials, etcetera? And so, what we’re seeing in the industry now is this movement towards this non-negotiated procurement process using the digital twin, using the agreed manufacturing process, negotiating on the critical components of the contract like margin, and then facilitating that frictionless procurement of subsequent products that fall into that same domain.
SE: We, as a company, Accenture, are investing significantly in the use of these digital twins for product attribute collection, for benchmarking across products within an industry, for this e-procurement, and generally for value realization. I think we just make a comment here. In fact, Adam and I today are in the offices of our new acquisition, Umlaut. We have visited Umlaut and Accenture and have now assembled a really world-class team that is engaged in using digital technologies for this increase in value realization for our clients. So, it’s an area of accelerating importance to our clients and certainly to Accenture. With that, I’ll thank the team for your attention. It’s always a thrill to get together with our colleagues at aPriori, and we value the opportunity to share our perspective.
RB: That’s great. Thank you so much, Adam and Scott. I really enjoyed the presentation. And for any of you folks watching today, if you’d like to learn more and contact the folks at Accenture, please reach out to Adam. His email is provided here. And with that, we’ll conclude our session, and thank you very much. Have a great day.
SE: Yeah. Thanks for the time.
AR: Thanks, everybody.