Developing Your PCM Strategy

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

shutterstock_1907211aPriori customers realize significantly greater ROI by collaborating with aPriori PS consultants throughout their deployment. We help them leverage a number of strategic best practices to realize the greatest possible impact from their product cost initiative. These best practices include:

Building On Your Successes

Cost management can have a significant and immediate impact across an organization – increasing profitability, accelerating time-to-market and growing revenues. As such, it’s appropriate to think big and aggressively about how to use it with a vision for what is best for the user organization. But it’s also important to develop a strategic deployment plan with a phased approach that builds on success within the organization.

Product cost management represents a new way of doing business for many companies. Because of this, aPriori advocates starting off with discrete projects that can generate immediate value for the organization. These initial successes can help build support in the organization, create internal champions and lay important groundwork for developing a deeper cost management culture in the organization. aPriori PS can helps users pick the right projects early to build a solid foundation from which to expand their product cost management initiative and position it for long term strategic growth and value.

Assembling a Core Implementation Team

One individual can’t drive an effective product cost management initiative alone. It’s also difficult to implement from the bottom up, no matter how well-intentioned that effort may be. aPriori PS helps customers identify and assemble the proper team and build support for cost management within the organization. These roles may include:

  • Executive Sponsor – Someone committed to implementing a product cost management program that recognizes the organizational factors to be considered to make the project goals a reality.
  • Champions – One or more executives and managers in key business functions whose teams will perform core cost management activities including NPI Engineering, Current Product Engineering / VAVE; Manufacturing Engineering; Cost Engineering; Sourcing.
  • PCM Program Manager – As the momentum from early pilot projects builds, assigning a dedicated program leader that has a clear understanding of cost management activities and how they apply to the organization overall is critical.

aPriori also advocates that to achieve a successful deployment, customers must think cross-functionally when deploying the solution. While an individual engineering or sourcing team can certainly identify potential cost savings using aPriori, it often takes other members of the product team to translate those identified savings into realized savings that go to the bottom line.

Implementing Strategically

For most companies developing a well-structured, value-generating, and widely-used product cost management capability is a new endeavor – from both a technology and operational perspective. aPriori PS offers a clearly defined and well-established process for your initiative including strategic planning, development, implementation and deployment. aPriori PS helps customers develop a clear scope and phased plan, focusing on one core activity and business group at the start. This includes:

  • Defining clearly measurable goals; e.g., reduce cost of a chassis assembly by 2%; accelerate the generation of a detailed cost estimate from 3 days to 3 hours; etc.
  • Identifying the core cost management activities that will support the user’s goals.
  • Identifying relevant process changes for the initial groups.
  • Establishing the type and characteristics of the cost estimates required to support the projects and work and how to configure the system to achieve these estimates.
  • Training the business group on the cost management processes and tools implemented to support the process.
  • Reviewing and publishing results with the implementation team and discussing process refinements.
  • Continuing to work with the user to select the next set of projects and manage them in a similar fashion to the first. The management of these initial projects is key to build momentum for continued expansion of the product cost management initiative.

PCM Strategy Image
Identifying Key Cost Control Points

These are measurable, managed checkpoints that dictate where and when people can impact product cost most efficiently. aPriori PS helps organizations identify the most effective cost control points across the entire product lifecycle. For example:

  • Design to Cost – During the introduction of a new product, there are typically design review meetings at regular intervals to ensure the new product is meeting form, fit, and functional requirements. However, rarely is there a conversation about the financial implications of the design alternatives being evaluated. aPriori PS helps incorporate cost evaluation as a standard part of key design review milestones.
  • Make vs. Buy – During product design, there may be decisions to make or buy that product, or key components within it. A company with a cost control point at this stage could quickly calculate the financial impact of both options and make an economically-wise decision in a fraction of the time that it would take to create and manage an RFP response from one or more suppliers.
  • “Should-Cost”– Another important cost control point comes when comparing ‘should cost’ estimates to quotes from suppliers. With ‘should cost’ analysis, sourcing professionals can compare supplier quotes for outsourced parts with aPriori ‘should cost’ data to identify which components to re-quote and realize savings on. aPriori provides visibility into which parts to focus on to drive cost savings.
  • Engineering Change Orders – aPriori is not just a specialist’s tool. Decisions are made every day that impact cost, across every group that touches product definition and delivery. For example, at a change review meeting, in addition to discussing form, fit and function of different engineering change options, product cost should also be discussed. If there were two options that had nearly identical engineering capabilities, but one was much cheaper to build than the other, organizations could make a better decision.
  • What-If Analysis– In manufacturing, your team can use aPriori to determine the lowest-cost method to produce a given part. They can change the materials being used as well as the processes and the routings. aPriori will help them. With aPriori, manufacturing personnel can model multiple scenarios to perform detailed what-if analysis and make comparisons between various materials and processes to determine the lowest-cost method.
  • Product Re-Design – These same capabilities can also be used in product re-design initiatives. As companies go through their engineering change order process, they can understand the cost impact of the proposed changes. Designers simply load parts into aPriori to see what they cost today and then make trade-off decisions using the aPriori platform. Instead of having to wait for updated cost numbers for each revision, product teams can make much faster decisions because the results of their changes are generated on-the-fly as they try design variations.

Setting Up Results Tracking and Monitoring Mechanisms

“If it can’t be measured, it can’t be managed” is especially true in effective product cost management. With that in mind, aPriori PS helps users:

  • Identify metrics to collect at key cost control points; e.g., percentage of parts in a BOM with cost estimates, the number of design alternatives explored, savings identified, etc.
  • Create a process for measuring and recording results; e.g., at first functional design milestone, first prototype milestone, and final design milestone submitting costs to ERP or PLM system.
  • Create a process for monitoring and reviewing results; e.g., every design review includes presentation of anticipated product costs and data.
  • Design incentive plans for program managers to reinforce these behaviors and activities; e.g., emphasizing product cost as a priority equal to product launch schedule, quality and functionality.

Expanding PCM

Once customers have confidence in their ability to use aPriori effectively in their initial deployment, aPriori PS helps them scale usage to increase its value. Typically, this includes expanding deployment to a new project, site, group or function. In order to continue to build and refine cost management infrastructure across the organization, aPriori PS helps customers leverage their initial projects to:

  • Establish a support network of Executive Sponsors, Business Champions, and Business Participants across different functions and business units.
  • Roll out standard operating procedures for all cost management activities.
  • Centralize tracking and reporting of results.
  • Create a funnel of cost reduction activities that will yield dividends across the short, medium, and long term.

In addition to expanding deployment, scaling usage may include:

  • Increasing the depth of analysis performed on the existing data to leverage it in a new way
  • Enhancing existing customer Virtual Production Environments (VPEs) to better represent customer internal manufacturing environments
  • Building new, in-depth VPEs to represent supplier manufacturing environments
  • Integrating aPriori with customer ERP or PLM systems to tie all cost information together on one common platform.

Integrating with Existing Systems

As a standalone cost management platform, aPriori will deliver significant value to an organization. However, without synchronizing aPriori with other enterprise automation solutions, the product development team is not 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.). Being able to load a BOM (bill of materials) and carry over part costs from PLM or ERP systems can be very beneficial to the cost management initiative. Furthermore, after a team member calculates cost for a new product design, it is important that the product cost management solution is capable of storing that data back within the existing PLM or ERP systems of record to create a closed loop flow of information. aPriori PS has considerable experience in this area.

As new material costing information is entered into a company’s ERP system, for example, it can be automatically input into the aPriori cost platform and everyone on the product team would benefit from this real time update of relevant data.

aPriori’s product cost management (PCM) platform was designed to tie all product development teams together on one common platform that integrates cost information from the different systems in use at a company (see image below).

Systems Integration

Enterprise Product Cost Management (EPCM) Platform

Each of the outer systems above (PLM, ERP, MRP and SCM) contains individual components of cost. However, 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. 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, integrated with other mission critical enterprise systems such as those above