Despite the significant advancements in design technology—both on the design software and production side—designing and building new products remains a costly endeavor. Margins are increasingly tight so organizations must carefully manage product costs to increase their revenue.
While innovation is still key to success in developing new products, engineers are increasing being asked to factor in costs considerations of design alternatives when brainstorming new product ideas. While form, fit and function have always been at the forefront of design engineer’s minds, a fourth “F”, finance, has been added.
Implementing systematic product cost management (PCM) can deliver significant benefits and provide organizations by providing a way to guide decisions at the earliest stages of design when costs can be most significantly impacted.
There are many different people and departments within an organization that impact product costs. For example, the engineering team decides on a specific design, however, there are often multiple alternatives to that design that meet the same design specifications (form, fit, and functional requirements). Each alternative dictates a different cost.
Manufacturing also plays a key role in determining overall product costs as there are many potential costs for manufacturing a product, many of which are often negotiable and dependent upon plant cost structure, capabilities and process control. The manufacturing engineer might select one way to produce a product, but there might be other more cost-effective ways to manufacture the same design.
What is PCM?
PCM is a set of systematic activities, processes, and tools used throughout an organization that guide all decisions related to the design and manufacture of a product to the lowest possible cost. Implemented effectively and consistently, PCM can enable organizations to attack costs at the point of origin and achieve the greatest impact on product cost reduction.
Let’s take a look at some of the more significant activities that can benefit from PCM.
- Studying the cost tradeoffs of different concept designs during the early stages of design.
- Evaluating multiple design alternatives during concept design phase.
- Evaluating the cost of proposed solutions to an engineering change order (ECO).
- Evaluating multiple manufacturing and tooling alternatives for lowest cost, including make versus buy analysis.
- Validating supplier quotes to ensure lowest pricing by generating a detailed “should cost” estimate.
These core activities fit into various functions and processes over the product’s life cycle, and are measurable, managed checkpoints that empower those on the product design team to constantly question decisions that affect overall product costs.
For example, design review sessions happen frequently to assure that designs in process are meeting their design intent, however, the financial implications of the design alternatives are rarely evaluated. An effective PCM plan should include mandatory cost evaluation as a part of key design review sessions.
In order to deploy PCM effectively, all members of the design team must have tools in place that facilitate the assessment of true product costs at a detailed level at any stage of development. Product cost estimation systems can quickly generate and manage accurate estimates without requiring specialized manufacturing or cost knowledge.
Other tools include reporting systems for documenting and tracking cost management results; analytical systems for searching large volumes of data to identify cost trends; and BOM cost tracking systems for estimating roll-up costs at any point in the product’s life cycle.
Without these core activities, processes, and tools in place, PCM remains a highly manual and decentralized function that is of value only to manufacturing and cost engineering experts. Empowering everyone on the extended design team to keep an eye out for ways to cut costs out of the development process opens up many windows of opportunity to identify and achieve significant product cost savings.