Eric Hiller published the first comprehensive product review of Galorath’s SEER Suite

 Product Cost in Industry, Product Cost Management, Software Tools (for PCM, ERP, PLM, etc.), Spend Analytics, Total Cost of Aquisition, Total Cost of Ownership  No Responses »
Aug 072020
 

Good morning again, product and service cost management aficionados,

You’ve been waiting for it for awhile I’m sure ! Who doesn’t wait with bated breath for the next installment of knowledge in the product cost management world?  Our founder, Eric Hiller, has been very busy with a lot of things lately, but he just completed the herculean task of doing a deep dive review on the SEER by Galorath (published at Spend Matters, where he been filling out a whole series on PCM tools, started with two articles in December 2019 (here and here)

Those of you in the product cost management world, especially if you are in the aerospace and defense industries, know a lot about the SEER suite. It’s been around for over 30 years now, growth in products, depth, and breadth. Much like Eric’s review on aPriori, which was so deep we had to explode it into two parts, the Gallery app suite is so broad that’s been matters needed to split the article into two. Apparently, it’s also so valuable it’s behind their firewall.

Here they are!:

 

 

 

So, you may want to check it out. And if you can’t get there and still need some advice, give us a call and maybe we can help you.

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aPriori — PCM / Spend Analytics Solution Profile

 PCM Technique / Cost Models, Project Cost Management, Software Tools (for PCM, ERP, PLM, etc.), Spend Analytics  No Responses »
Jun 092020
 

Hello again cost management aficionados!

Spend Matters just published Eric Hillers’s next deep dive on cost management tools — this time on the article reviewing aPriori.  They decided to break it into 2 articles.  The first one went up on June 8
It is behind their paywall, so you will only see a teaser of a few paragraphs, unless you have a subscription.
You all may remember that I did a two-part series on the history and landscape of PCM and Spend Analytics solutions with our good friends over at SpendMatters.com in December. You can find those jumping off point analysis here and here.

Please check it out over at Spend Matters. One caveat: I have been the victim of my own success in that Spend Matters thinks the article such good content that you will see a teaser article and then need to pass through their paywall to see the full analysis.

Here’s a teaser of some of the insight that you’ll get:

 

 

 

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What’s the Price (WTP) — PCM / Spend Analytics Solution Profile

 Product Cost Management, Software Tools (for PCM, ERP, PLM, etc.), Spend Analytics  No Responses »
Mar 092020
 

Hello again cost management aficionados!

I would like to announce the first in my series of deep dive profiles on specific product cost management software solutions. You all may remember that I did a two-part series on the history and landscape of PCM and Spend Analytics solutions with our good friends over at SpendMatters.com in December. You can find those jumping off point analysis here and here.

As of late last week, we posted the first of our deep dives on one of the solutions, What’s the Price (WTP).  Please check it out over at Spend Matters. One caveat: I have been the victim of my own success in that Spend Matters thinks the article such good content that you will see a teaser article and then need to pass through their paywall to see the full analysis.

WTP is really intriguing as a software solution, so I hope you enjoy the analysis!

Here’s a teaser of some of the insight that you’ll get:

Click here to read more!

Eric A. Hiller

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SEER Composites Brings Cost Estimating to CATIA

 Product Cost Management, Product Lifecycle Management, Software Tools (for PCM, ERP, PLM, etc.), Uncategorized  1 Response »
Mar 202014
 

Hiller Associates posted the following article at ENGINEERING.COM yesterday.  You can read it there at this link, or just keep reading below!

=============================================================

Another solid piton in the cliff of making product cost mainstream in CAD / PLM Products?

CATIA users can now get a faster and more effective way to design and source composites products with the highest profit by bringing the estimation ability closer to the designer’s native environment. Galorath Incorporated debuted its newest integration of SEER® for Manufacturing with the Dassault Systems 3DEXPERIENCE® Platform in CATIA at the JEC Composites conference in Paris. The new product is called the SEER Ply Cost Estimator.

Who is involved?

Hiller_Associates_Seer_Catia

Galorath Incorporated grew out of a consulting practice focused on product cost estimation, control, and reduction that began in the late 1970

s. Over the last 30 years, Galorath built their costing knowledge into the SEER suite of software products. SEER is one of the independent product cost estimating software companies.

Dassualt Systems is one of the “big 3” Product Lifecycle Management (PLM) companies in the world.

Hiller Associates spoke with Galorath CEO Dan Galorath, Vice President of Sales & Marketing Brian Glauser, and SEER for Manufacturing product lead Dr. Chris Rush and got a full product demo.

What does this integration do?

The integration allows users of CATIA to use SEER’s costing software for composite materials within the CATIA environment. In CATIA, the engineer designs a lay-up for a composite part, generating a Ply Table (a critical design artifact for composite parts that specifies material, geometry, and some manufacturing info). That activates the integrated SEER Ply Cost Estimator so that the designer (or the cost engineer or purchasing person aiding him) can set up more part-specific costing choices and preferences within the CATIA environment.

When ready, the user pushes the cost analysis button. The information is processed by SEER Ply Cost Estimator which sends the ply table data and other information to the interfacing SEER-MFG software to compute cost. The cost data is returned and presented to the user, once again within a native CATIA screen.

How broad is the capability?

Click to ENLARGE!

Click to ENLARGE!

Currently, the integration of SEER is applicable for parts made of composite materials. It’s a strong starting point for the integration partnership because SEER has a long experience in the field of costing composites, working with companies in the defense and aerospace verticals. Composites are also becoming more mainstream in other industries, such as automotive and consumer products. Galorath has been a major player in the US Government’s Composites Affordability Initiative (CAI), a 50/50 government/industry funded consortium including Boeing, Lockheed and Northrop Grumman that was formed to drive down the costs of composites. Galorath has also worked with Airbus in the area of composites parts costing.

Galorath’s Brian Glauser says that the SEER Ply Cost Estimator has hundreds of man-years invested, much from previous work with CAI and with aerospace companies that resulted in several of the modules already in the SEER-MFG standalone product.

The first version of the SEER Ply Cost Estimator handles many composites manufacturing processes, materials, concepts of complexity, and both variable and tooling costs. However, it does not yet directly cost the assembly of one part to another.

The initial integration will be to CATIA v5, but SEER and CATIA have signed a v6 agreement as well. That integration will follow later.

Galorath (and likely Dassault) are hoping that the SEER Ply Cost Estimator will be well received by customers and help drive many product cost benefits. If this happens, there may be demand from Dassualt’s end customers not only to improve the SEER Ply Cost Estimator, but to expand the SEER/CATIA integration to other manufacturing processes covered in SEER’s stand-alone software products such as machining, plastics, sheet metal and assembly processes.

What does it mean for Functional Level Groups?

Philippe Laufer, the CEO of CATIA was quoted saying :

“Using Galorath’s SEER for Manufacturing in CATIA…will help companies perform early trade-off analysis on the use of various materials and composites processes before manufacturing even takes place.”

Well, that has been one of the goals in Product Cost Management for a long time. If your company uses composites, the tool has the following possibilities:

  • Engineering – identify which design choices are driving cost and by how much
  • Purchasing/Manufacturing – get an early warning of what to expect from suppliers before asking for quotes or estimates (should-cost)
  • Cost Engineering –focal point for the cross-functional discussion about cost to drive participation, especially from engineering

It’s important to realize that this integration will have its limitations, as with any costing product. First, the current integration applies only to composites. While expensive, composites are only one type of part on the Bill of Material (BOM). You will have to go beyond the current integration of SEER/CATIA to cost the full BOM, perhaps to SEER’s standalone costing product or to those of its competitors.

Second, remember that cost is far harder to “accurately” estimate than many physical performance characteristics. While meeting an absolute cost target is important, even more important are the following:

  1. Continuous Design Cost Improvement – If your company consistently designs lower cost products because you have superior cost estimation information, you WILL beat your competitors.
  2. Correct Cost and Margin Negotiation – If your company is better at negotiating quotes because it can give suppliers a better understanding of what it will cost them to make your part and you can negotiate a margin that is not too high, but adequate to keep your suppliers healthy, you WILL beat your competitors1.

What does it mean for the C-Level?

Philippe Laufer of CATIA also says:

“This [the SEER Composites integration] leads to finding out the most efficient way of manufacturing a product while meeting cost, performance, functionality, and appearance requirements.”

The C-suite doesn’t really care about composites or ply tables in and of themselves, but it does care about revenue and profit. Of course every well-marketed product will claim to improve these metrics. Regarding product cost, the good news is that Galorath and Dassault are aiming at a big target. Companies that use a lot of composites can have very high costs. For example, Boeing and Airbus have Cost of Goods Sold of 84.6% and 85.5% and Earnings before Tax of 7.2 and 3.6%, respectively2. Those COGS figures are big targets on top of a highly leveraged COGS/Profit ratio.

What does it mean for Product Cost Management becoming mainstream in the enterprise software stack?

We asked Dan Galorath how long it would be before Product Cost Management was as much of the PLM ecosystem as finite element, manufacturing simulation, or environmental compliance. He replied:

“Cost estimation software will never be on every designer’s workstation, but I don’t believe that is what it means for Product Cost Management to be considered ‘mainstream.’ It’s not fully mainstream yet, but a greater need is being driven by outsourcing and the tight business environment. The procurement folks can’t only rely on internal manufacturing knowledge like they used to. They need tools like SEER to fill the gap and move the cost knowledge base forward.”

We agree with Mr. Galorath. This is another step, another piton to secure Product Cost Management onto the PLM cliff, as PCM continues to climb this steep hill.

This is the first integration point between independent Product Cost Management software companies and the PLM/ERP world since September 2012, when Siemens PLM purchased Tsetinis Perfect Costing3. PTC has built some level of cost tracking ability into Windchill, and Solidworks (owned by Dassault) has developed the first couple versions of a costing calculation module for their product.

There is still a lot of ground to cover. There are quite a few independent product cost management software tools that have costing intellectual property that can accelerate the process, especially if the big PLM companies acquire them or partner with them. When that will happen is anybody’s guess, but for now it looks like CATIA users, at least, have a viable solution for composites costing… and maybe more in the future.

1 For more information, see the Hiller Associates Industry Week Article: Your Should-cost Number is Wrong, But It Doesn’t Matter

2 Per www.morningstar.com, trailing 12 months COGS, 3/13/2014

3 Siemens buys Perfect Costing Solutions (Tsetinis), Hiller Associates, September 2012

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2012 Product Cost Management Revenue Assumptions

 Product Cost Management, Software Tools (for PCM, ERP, PLM, etc.)  No Responses »
Apr 172013
 

 

Hello Internet and Product Cost Management industry! We’ve had strong interest in our latest article on the 2012 revenues of the Product Cost Management market. There have been several good questions that have made us want to clarify some of the assumptions in the analysis, so that people are clear on what is and is NOT included in the estimate.

 

Most importantly, this is an estimate of the REVENUE of the group of included vendors today in 2012. This does NOT represent the Total Addressable Market for Product Cost Management software.

The total addressable market is many times larger than the revenue of the included vendors that are estimated in 2012.  In fact, we plan to write follow-up articles that discuss the total addressable market, as well as the growth rate of the current vendors in reaching that total addressable market  Here’s some of the assumptions we made in the analysis:

  1. Only the Vendors noted are estimated – The uncertainties do not explicitly take into account other vendors. They reflect the fact that most of these are private companies whose numbers are not public and that vary from year to year. Obviously, it matters where one draws the line in the analysis.
  2. Focused on the estimation of manufactured products, not construction – there are many products in the market that focus on construction estimation, for example estimates for building an office building, an oil platform, a refinery, etc.  We consider this a wholly different market. In our own experience we have rarely if ever see the companies that specialize in construction estimation also compete for the same customers for which the companies listed in this Monday’s article compete.
  3. Not focused on job shops – there is also a separate market for software used by small “job shops.” These are small, mostly family owned businesses, that typically manufacture one type of part, for example sheet metal, machined castings, etc.  Some of the included vendors may sell to a few job shops, but there software is capable of being used by bigger enterprises.
  4. Generally Available Software – We only included vendors whose primary business involves selling a legitimate “generally available” software product (not a consulting business with internal tools)

Given these constraints, we believe this group represents over 90% of the revenue in the market today. If you know of other competitors who meet the criteria above and make over $2 million USD a year in revenue, let us know.

Keep the questions coming! We are glad there’s so much interest.

 

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2012 Revenues in the Product Cost Management Software Market

 Product Cost Management, Software Tools (for PCM, ERP, PLM, etc.)  8 Responses »
Apr 152013
 

Hiller Associates received a question this week from a business school asking us what the revenue of the product cost management market is. That was a very interesting question, and one that we have thought about before. However, we’ve never actually sat down to think about the question formally. So rather than answer the person privately, we thought it might be helpful to everyone to discuss this in a public forum.

 

Product Cost Management Software Companies Hiller Associates

Companies included in the Revenue Aggregate

There’s good news and there is bad news with respect to the estimation of the size of the Product Cost Management market. The good news is that the market is fairly self contained, i.e. there are only a certain limited number of players in that software market. However, that’s where the good news ends. There are several challenges to estimating the market size:

  • Private companies -80% of the players in the product cost management software market are privately held companies, either venture funded, or privately held by a small group of founding owners and managers. Therefore, their revenue numbers are closely guarded information that is not publicly available. This includes the PCM company that our managing partner, Eric Hiller, founded and at which he was the CEO and then the Chief Product Officer for many years (aPriori).
  • Bundling – the second challenge comes with the fact that some of the larger players bundle product cost functionality into the price of another larger product. For example, Solidworks Cost is a bundled-free option that is included whenever someone buys their professional or premium level Solidworks CAD product.

There is is one other good piece of news, which is that Hiller Associates knows most of the players in the market and speaks with them regularly.  For some of them, we do know the revenue, and for others, we have a good idea. Obviously, we cannot share revenue numbers of an individual company, but this inside information will help us move the estimate from a wild guess to an educated guess.

Taking a look at the figure on the left, you will see the companies that we have included in the estimate. These are all the main players that we know of in the market. If there are others that we’ve missed, we’re very happy to learn about them and consider if we should add them to the market sizing.

2012 Revenues in the Product Cost Management Software Market

Those of you who follow this blog or have worked with Hiller Associates know that our philosophy is that point estimates are very dangerous and, often, not even that useful. Knowing the uncertainty around a cost number is just as important as having a point estimate of what that number is. We feel this holds true with any financial quantity. Therefore, we will provide a range of the size of this market.  Please see the figure on the right, which shows are estimate of the total revenue of the company’s above for 2012. When given the uncertainty factors that we have discussed above, we feel the total market has a large range. Total revenue could be as low as $60 million or as high as, perhaps, $115 million.

Current market revenue of Product Cost Management Hiller Associates

Click to Enlarge!

Other questions that people should ask are how much of this revenue comes from services and how much of this revenue comes from actual licensing of product. Some of the companies included are primarily product companies, and most of the services that they offer are tightly bound around the product. Such services would include training on the software, implementation, and customization. However, there are others in the group that also maintain general consulting businesses. For example, several of these companies offer classes about product cost or  subsets of product cost management, such as design for manufacturing & assembly (DFM/DFA).  These are general classes which only relate peripherally to their products.

Estimate Methodology

To do our estimate, our methodology was to estimate the revenue of each of the included companies individually. We also did an estimate of the service percentage of their revenue on an individual company basis. Then we added up the aggregate numbers. You will notice from the estimate figure to the right that when all the numbers for service and product revenue or aggregated, there is approximately a 60/40% split between product and service respectively. This ratio of product vs. service revenue seems approximately correct, per our experience in the market.

Software vs Services in Product Cost Management Hiller AssociatesIt’s important to understand, that this estimate is four the actual revenue of these companies in 2012. It does not reflect the total addressable market for product cost management software, which we believe is woefully on realize that this moment. This is the first our discussions about revenue in the product cost management software market.

NEXT TIME: Growth Rate in the Product Cost Management Software Market

 

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It’s not the club… it’s YOU! (Lean = Vertical Integration = Better Product Cost Management Part 2)

 Product Cost Management, Software Tools (for PCM, ERP, PLM, etc.), Uncategorized  2 Responses »
Feb 212013
 

Last week we talked about the struggle in corporate strategy between Core Competency structures and Lean manufacturing. Whereas Core Competency thinking naturally leads to more outsourcing and extended supply chains, Lean manufacturing would advocate for a geographically tight supply chain, often with more vertical integration.

So, what does this have to do with Product Cost Management. The answer is “knowledge.”

The Lack of Manufacturing Knowledge In Design

One of the biggest complaints that I get from my clients is that their teams have lost or are rapidly losing product cost knowledge in the last 10 years. This is especially acute with design engineering teams, but also effects other parts of the organization, such as purchasing. Years ago, the engineering curriculum at universities became so overloaded that manufacturing began to be pushed to the side in the education of most engineers (excepting the specific “manufacturing” engineering major). In fact, at most top engineering schools today, there is only one high level survey course in manufacturing that is part of the required curriculum.

However, manufacturing and its evangelistic design missives (design-to-cost, design-for-manufacturability, design-for-assembly, etc.) were still learnable skills that the young engineers and others could pick up on the job, over time. This is because most product companies were not only in the business of final assembly, but also in the business of sub-assembly, as well as manufacturing components from raw materials. These companies employed large amounts of manufacturing engineers who were resources for the design and purchasing teams. Even for parts and subassemblies that were purchased, the suppliers were likely close by the design centers and had long standing relationships with the OEMs.

Designers and purchasing people could literally walk down to a manufacturing floor in an internal plant or drive a few minutes to a supplier. Conversely the manufacturing engineer would walk upstairs to question engineering about a design. This is nearly impossible when suppliers are often in different countries and the firm that designs does little manufacturing themselves

The Effect of Lack of Manufacturing Knowledge on PCM Tools

One of the ways that industry has tried to remedy this situation is with sophisticated Product Cost Management software. This software codifies a lot of the tribal knowledge that resided in the manufacturing engineers head. However, these tools assume that the tool users have (1) the will and (2) the skill set to properly use a PCM Software.

There is no doubt that the PCM and DFM/DFA tools today are far more advanced than they were, even ten years ago.  However, the value one derives from a tool is not a function of the tool’s capability alone.   There is a bottleneck problem of using a tool to its full potential.  We could say that the value the PCM tool actually gives to the organization equals:

Value of PCM Tool = (Will to use tool) * (Ability to use tool) * (Potential of the tool)
 

People often forget about the ability component, but this is true with any tool.  People buy expensive tools, e.g. golf clubs, hoping to improve their performance.   However, 90% of the time, they cannot even use the set clubs they have to their full potential.  Worse yet, often more expensive or sophisticated tools are more powerful and have the potential to give more value, but they are often less forgiving of errors.  If you don’t know how to use them, they will HURT your performance.

In the past, with a Lean (vertically integrated and geographically close) supply chain, people used primitive PCM tools (often only spreadsheets).  On a scale of 1 (worst) to 10 (best), on average what I hear from industry is that there capability to use the tool was higher, but the tool was limited and cumbersome.  The users, including design engineers, knew what decisions to make in the tool, but the tool was cumbersome.   Currently, we have more of the opposite problem.  The PCM tools are better and much easier to use, but most design engineers are somewhat baffled on how to make what seems like the simplest of manufacturing input decisions in the tools.  The “Will to use the Tool” is another problem altogether that is beyond our discussion today.  However, my experience, in general, would be represented by the following table:

Tool_effectiveness

These results will vary company to company, and even, from design team to design team within the company.  Regardless, I wonder if we are at a breakeven state from where we were in the past today in the value we get from PCM tools… or maybe, we have even lost ground.  The sad thing is  that the PCM tools today ARE more user friendly and requires less of an expert to use.  However, is the loss of manufacturing knowledge in design engineering is so bad that it has overwhelmed the PCM tooling ease-of-use-improvements?

What Can You Do to Help the Situation in Your Company?

Obviously, nothing is as good as the osmosis of manufacturing learning that occurs from a tightly coupled, geographically close, and vertically integrated supply chain.  However, the state of your firm’s supply chain is likely out of your control personally. There is some positive movement with the re-shoring and re-integration trends in industry, in general. However, there are steps you can take to improve the value your firm derives from PCM tools.

  • Send Engineers Back-to-School – do you offer (or better yet, mandate) classes in Product Cost Management, DFM/DFA, Target Costing, etc. for your design team? This should be part of the continuing education of the design engineer. I am not talking about training on the PCM tools themselves (although that is needed, too), but general classes on how different parts are made, the different buckets of cost, the design cost drivers for each manufacturing process, etc.
  • Design Cost Reviews – This is a very low tech way to create big wins. Design reviews in which design engineers review each other’s work and offer cost saving ideas should be a regular facet of your PCM process. Even better: include the engineer’s purchasing counterpart, company manufacturing experts, and a cost engineer to lead the review
  • Embed Experts – Does the design team have at least one advanced manufacturing engineer or cost engineering expert for no more than 20 design engineers? If not, you should consider funding such a resource. Their salary will easily be paid for by (a) the cost reductions they they help your team identify for products already in production, (b) the costs that help the team avoid in designs before production, and (c) the speed their efforts will add to time-to-market by helping the team avoid late changes and delays due to cost overruns.

In the past, vertical integrated, geographically close supply chains helped Product Cost Management in a passive way.  The pendulum may be swinging back to that structure.  However, even if it does, don’t rely on the “passive” Product Cost Management to help. Take the active measures described above and get more value out of your PCM Software investment.

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Today’s Product Cost Killing Tip — Control the Evil Robot Overtolerancer!

 Product Cost Killing Tip, Software Tools (for PCM, ERP, PLM, etc.)  2 Responses »
Feb 112013
 

There were a lot of comments last week to the article we posted with the title: Only 17% Percent of Companies Meet Product Cost Target

Many people complained about the dearth of knowledge of the design engineer in Design for Manufacturability.  In the discussion, we also started to propose some solutions to overcome this problem.  However, one comment that sparked my interest was a comment about WHY design engineers often overtolerance parts that went beyond “they don’t know any better.”   The comment paraphrased was:

A big problem we have is that we are making parts directly from the CAD model. A lot of Catia based models have a general tolerance of +- .005 [in.] on the entire part .including fillet radii and edge breaks. …these features have to be penciled off with a ball end mill instead of using a standard tool with a radius on it can kill profit on a job when you miss it when quoting.

That is a fascinating observation.  There is no doubt that the Product Lifecycle Management companies will be pleased as punch that people are finally taking their drum beating on “model is master” seriously.  FYI – I agree that the model should be master and that drawings should be generated from the 3d master data.  However, this improvement to PLM adherence highlights what happens when new technology (a tool) is foisted upon a problem without without understanding the current processes and outcomes that the incumbent tool is satisfying.  In this case, the old tool is paper drawings.  With the incumbent tool, there was a title standard block that for companies, and that title block would give helpful bounding constraints such as:

Unless otherwise specified:

All dimensions +/- o.o1 inches

All radius and fillets +/1 0.02 inches

Etc.

That helpful and protective title block may not be there with a 3d, model onl,y strategy.  All the evangelism on “tolerance by exception” goes right out the window what the CAD system now has default values that are overtoleranced by definition.  The CAD system itself becomes… The Evil Robot Overtolerancer.

The good news is that the Evil Robots can be controlled, and you don’t even need anyone named Yoshimi to help you do it.  However, it will require some thought, before you change the default tolerances in your CAD system.  Some considerations to think about are:Yoshimi Product Cost Hiller Associates

  • What were the default tolerances in the title block on your drawings when the drawing was master?
  • Can these tolerances be reduced?
  • How surgically will your CAD system allow you to set default tolerances?
  • Do you need different tolerence ‘templates’ depending on the primary manufacturing process.  E.G. tolerance defaults may be very different for a casting that is machined than for a piece of sheet metal.
  • How will you make your design engineers aware of these new default tolerances?

Whatever decision you make, make sure all the right people are at the table to make it together, including design engineering, the drafting team (if separate from design), purchasing, and manufacturing (including suppliers, if parts are made externally).  If done thoughtfully and correctly, the setting of default tolerance will bring the Evil Robot Overtolerancer under control.  If these changes are made in a vacuum or carelessly, you may find that you have made the Evil Robot 10x more powerful as an agent of chaos and profit destruction.

You want to be dealing with the friendly Autobots, not the Decepticons, right?

transformers product cost hiller associates

That’s today’s Product Cost Killing Tip!

If you have Product Cost Killing tips that you would like to share, please send them to [email protected].

 

 

 

 

 

 

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Buying the shake weight as the solution to your bad product cost eating habits

 Product Cost Culture, Product Cost Management, Software Tools (for PCM, ERP, PLM, etc.)  No Responses »
Jan 292013
 

Hiller Associates recently was the keynote speaker at aPriori’s first customer conference.  It was a great opportunity to both teach and learn from experts that came from a wide range of industries and geographies.

Hiller Associates’ President, Eric Hiller, discussed several topics, of which we’ll mention two here.  The entire presentation can downloaded for FREE.  Just click on the slide below and get the presentation:   Best_Practices_for_Starting Your Procuct Cost Management Journey or Improvement.

Variance in Cost Numbers

One of the main themes discussed was the possibility of getting an “accurate” cost, meaning how possible is it to get a cost that is within a certain percentage of a fixed point of reference, such as a supplier quote.  There are several ways to look at this problem that we may discuss in subsequent weeks on this blog.

Eric Hiller at aPriori STARS 1 2012 product cost Hiller Associates

Eric Hiller presenting the keynote speech at the aPriori Customer Conference

However, in summary, the presentation asked the question:  what cost variance is inherent in your system already?   For example, if your 3 quotes from supplier have a range of 30% from highest to lowest, then is it realistic to expect the cost that you calculate in a product cost management software to be closer than 30% away from a random quote?

It was refreshing to see how open the audience was to these concepts.   The reactions to the variance concept went from wide-eyed amazement from people who were new to the cost management field, to thoughtful reflection from the veterans.  In fact, the veterans reacted like men who had been reminded of a truth that they knew all along.  Often, such common truths are forgotten due to immersion in the day-to-day challenges of keeping a company profitable.  We call this concept having a “blinding flash of the obvious” – a BFO.  Everyone in the room had that BFO, and no one wanted to argue about it.  Instead, there were many comments throughout the conference that further explored this concept.

Culture is the biggest loser

Another theme of the presentation was driven by the latest research in Product Cost Management done by Hiller Associates.  Those who follow us regularly know that we segment problems in our consulting work into four root causes:  Culture, Process, Roles/People, and Tools.

Our latest research shows that cultural problems are the clear bottleneck in most firms’ Product Cost Management journeys.  The respondents overwhelmingly agreed.  When Eric ask the attendees which area was their firm’s biggest PCM bottleneck, the conference participants voted as follows, based on a rough estimate of hands in the air:

Best Practices for Product Cost Management Hiller Associates

CLICK TO GET FULL PRESENTATION

  • Culture 60-70%
  • Process 20-30%
  • People/Roles 0-5%
  • Tools     5-10%

That’s fairly shocking at a conference whose organizers are a Product Cost Management TOOL vendor.  [Next time HA will have to set our honorarium higher for taking the pressure off of any problems with the vendor’s product!]  Joking aside, culture is obviously the  biggest problem and it is not an easy thing to change.  In fact, companies often buy a PCM software tool hoping that it will somehow magically fix their bigger cultural problems.

It reminds one of obesity problems.  Many companies have a culture of binging on product cost during design.  In purchasing & manufacturing they continue with cost obesity denial — not know what the cost calorie count is until the parts arrive at the door with an invoice.  However, instead of changing their cost eating and exercising habits, they look for a magical cure in the form of a software tool.  Let’s call this “the shake-weight approach” to product cost management.

We’re not disparaging the shake-weight, or any other home exercise equipment.  Certainly, all home exercise equipment can help you lose weight, just as we are sure that all of the PCM Tools can help one reduce cost.  But, you have to use these tools regularly and properly.  PCM software tools are too much like home exercise equipment.  People buy them thinking that the tool will magically solve cost obesity.   They use the tool twice and then it sits in the corner unloved, unused, and unmaintained… and, yet, people wonder why they are still product cost obese!  It’s not the tool that the problem, it’s your culture.  Much like changing your eating lifestyle, changing the PCM culture is really hard and tricky to do.  That’s why cultural issues are often at the forefront of most of the engagements that we do with clients at Hiller Associates.

However, it was refreshing to see that the attendees at aPriori’s conference did seem to understand this problem, or at least were very open to the idea.   So, maybe we are making progress on this point.  Or, maybe  HA needs a TV show “The Biggest Cost Loser” in which Hiller Associates works with companies to increase product profit with weekly product cost “weigh-ins.”  What TV viewer wouldn’t watch that kind of riveting drama…

Now, get out there and do some product cost push-ups!

If you would like to see the entire presentation from the conference, just click on the slide image above and get the presentation:  “Best Practices for Starting Your Product Cost Management Journey or Improvement.” 

 

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Download – Best Practices for Starting Your Product Cost Management Journey or Improvement

 Product Cost Management, Software Tools (for PCM, ERP, PLM, etc.)  1 Response »
Jan 292013
 

 

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