Posts Tagged "pcm"

My last post outlined the significance of Product Cost Management (PCM) for OEMs and Suppliers to drive profitability and continuous improvement throughout the entire supply chain.

Ideally, PCM needs to be done early in the product development cycle, as early as the conceptual phase – design and supplier selection is much more flexible early in the process – so it is important to enable cost engineering during the front end of product development and ensure profitability with control over costs for parts and tooling.

Not everyone can optimize cost early, or not in all situations. PCM processes and tools may also need to be applied in later stages of the product lifecycle. Even when cost models and consultation based on facts get applied early in the lifecycle, there might be a need to do it several times over the lifecycle, so PCM needs to support the cost model across all corporate functions from product development to sales and establish a single consistent repository for estimating and communicating cost with repeatable processes and historical information. As PCM is spread over the product lifecycle, it’s important to take an enterprise-wide approach to costing. An ideal PCM system needs to align with the product development process managed in a PLM system, so there is lot of synergy between a PLM and PCM.

The most commonly used tools for PCM – spreadsheets and custom programs that conduct simple rollups – are not suitable for enterprise-class wide processes; these solutions do not provide the details required to develop credible cost models. They also make it very difficult for designers to compare products, concepts, and scenarios. Spreadsheets fail due to quality problems and the inability to implement them effectively on an enterprise scale, resulting in different product lines, geographies, or lines of business having different approaches. Non-enterprise approaches also make it difficult to reuse information or apply product changes, currency fluctuations, burden rates updates, or commodity cost changes

By extending an enterprise wide system like PLM for PCM functions, cost management is effectively communicated and captured to institutionalize it for future product programs.  This eliminates disconnected and inconsistent manual costing models, and complex difficult to maintain spreadsheets.  This also supports easy, fast, and reliable impact analysis to incorporate product changes accurately into costs with visibility to all cost factors and make these processes repeatable. The PCM process can also leverage the existing 3D model parametric data managed in PLM systems to extract the relevant parameters such as thickness, surface, and volume for the feature based calculations. Other PLM data that can be reused for PCM includes labor rates from engineering project management, material costs from material management modules, bill of materials/process and tooling involved with engineering and manufacturing data management. An integrated PLM and PCM solution is also important for efficiency and allowing companies to reuse both product data and cost models to facilitate continuous improvement over time .

In the next post of this series, I explain how the Siemens PLM Teamcenter suite supports PCM.

My last post outlined the importance of having an integrated PLM and PCM solution. Siemens PLM implements this vision though its Product Cost Management application bridging the gap between traditional PLM and ERP. With Teamcenter PCM, companies can migrate from disconnected tools to an integrated solution. The integrated IT environment platform helps them to manage cost knowledge with consistent data, build standardized obligatory cost methods and models, and create fact-based and cost-driver-transparent calculations; at the same time, it enables cross-functional collaboration and communication.

Product Costing

The highlights of product costing capabilities include Cross-functional Calculation of Pre-/Quotation Costing, Calculation of R&D Costs, Purchase Price Analysis, Open Book Accounting, Profitability Calculation/Project-ROI, Differentiated overhead calculation (freely selectable degree of detail), Process-based bottom-up calculation and cost models (cost engineering approach), Cost rate calculation with company-owned data records, Integrated cycle time calculators (die casting, injection molding, machining, MTM, client proprietary, etc.), Versioning of calculations (documented change history), Flexible simulations of what-if scenarios (e.g., production alternatives, volume adjustments), Profitability calculations (return-on-investment over product lifecycle), Flexible reporting functions (e.g., multi-stage cost driver analysis), Integration toolkits for data exchange with customer specific systems (e.g., ERP), Import and export of cost breakdown sheets (supplier and customer), Multi-lingual, multi-currency, freely configurable costing methodologies, cash flow calculation, and data management for reuse.

Tool Costing 

Teamcenter PCM’s parametric and 3D-based tool costing has support for both quotation costing in tool-making and cost analysis in tool purchasing. Tool Costing delivers fast, reliable and detailed information on manufacturing times and costs. Tool Costing also enables both buyers and tool manufacturers to precisely and repeatably understand knowledge data, secure this information within the enterprise and document it in an audit-compliant manner with the option of using 3D data for calculations. Teamcenter provides a variety of tool technologies, including injection molding, die casting, and composite tools. 3D data can be read automatically or manually to create the geometry parameters. Both the tool buyer and the tool maker – whether injection molding, die casting, cutting, stamping, or other production tools – can make decisions regarding the tool costs that are fully integrated within the Teamcenter product cost management solution.

Cost Knowledge Management 

Teamcenter PCM has a standard and extendable cost knowledge base for costing calculations including worldwide factor costs (labor, production area, energy, interest rates etc.), physical material data of all prevalent materials, reference machines with economic and technical data for all prevalent manufacturing technologies, and complete reference processes for many manufacturing methods with the ability to integrate customer specific corporate costing library.

Profitability Calculation

The integrated profitability calculation in Teamcenter gives project and product controllers and managers a powerful business case analysis and decision-making tool while delivering the necessary instruments to ensure success, including: Consolidation of multiple product(s) in a single project (general project data, lifecycle, quantity progression, unit costs and prices, etc.), year slice presentation of cash flows for project-specific investments (plants, tools, engineering, etc.), dynamization of unit costs and sales prices for the individual year slices in the product lifecycle, calculation of common profitability ratios such as net present value (NPV), internal rate of return (IRR), return on capital employed (ROCE), return on sales (ROS), amortization period (payback), project-based profit and loss accounts, as well as discounted cash flow accounts and trend curve for cumulative (discounted) cash flow, variant calculation, and sensitivity analyses for comparing various what-if scenarios and premises.

There are great engineered products and then there are commercially successful products. Many variables factor into the profitability of a product: innovation, satisfying customer needs and delivering a great customer experience with product performance help companies to drive sales, command price premiums, and boost their topline results. While product development engineers are focused on the form, fit, and function of their designs to drive innovation and a great customer experience, often the product cost impacts of their decisions to drive profitability from the expense perspective are overlooked.

Engineers seldom have visibility to the cost impact of their decisions; they can’t optimize their design parameters for cost in the context of other design parameters, as they don’t have the required information. The biggest challenge to optimizing cost is understanding different cost parameters, and that requires a detailed knowledge of manufacturing processes and cost drivers.

Product Cost Management (PCM) allows product development companies to design for cost by providing early visibility to the cost implications of design decisions. Using PCM processes and tools they can systematically simulate and evaluate different scenarios to develop an ideal “should cost” model that is based on a detail-oriented cost parameters of materials, manufacturing processes, supply chain , regulatory compliance, product support and service. This helps them to identify cost saving ideas like changing materials, simplifying designs, combining parts /functions, or changing production locations.

There are different PCM techniques. Feature-based techniques look at the characteristics of a design to eliminate unnecessary, high-cost design features. Bottoms-up approaches based on Bill of Process (BOP) calculate more accurate cost models based on the manufacturing processes including labor, equipment, tooling, setup, and other production information. It enables companies to perform a “what if” analysis by modeling multiple production scenarios.

The benefits of PCM are not only for manufacturing companies to design their products for optimal cost by receiving feedback on the cost impact of the design decisions – they also help companies that rely on their supply chain to source for optimal pricing. Even though Direct Material Sourcing processes introduce a price competition, they are seldom based on optimum cost. Using PCM, original equipment manufactures (OEMs) can simulate their suppliers’ production costs. Even if no supplier can match the ideal “should cost” price point, it allows supplier selection with the knowledge that they need OEM help to produce at the ideal cost. This again drives continuous investments towards cost improvement in the supply chain; that’s a win-win scenario for both OEMs and Suppliers.

In my next post, I will show you how PLM supports PCM.

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