Apr 302012
 

Michelle Boucher from Aberdeen Research just put out another nice piece of research on Product Cost Management.  (Actually, it’s not about PCM specifically.)  It’s called Product Development Single Source of Truth:  Integrating PLM and ERP.   The report delves into perennial topic of Enterprise Resource Planning (ERP) and (or versus) Product Lifecycle Management (PLM).

I have worked closely around these enterprise categories for the last 10 years, but I admit I may not be an expert of Michelle’s level.  However, from my seat in the ballpark, it feels like the open warfare between PLM and ERP has now morphed into a cold war or maybe cautious Glasnost and the realization of each other’s right to exist.    Michelle’s report doesn’t focus on the war between the software categories but on the end customers.  The end customers know that both ERP and PLM must exist in a corporation, but they have the problem of figuring out how ERP and PLM should best work together.

The general interoperability of ERP and PLM is beyond my interest in this post.  What is interesting is that there is research in the report on Product Cost Management, even if the report does not call it out specifically.   Here’s a few pieces of data that I have surgically excised from much larger tables from a much larger report.

How important is Product Cost Versus Other Pressures?

Top Pressures Driving Improvements to How Products Are Developed Hiller Associates

CLICK to Enlarge: Top Pressures Driving Improvements to How Products Are Developed

Readers of Jim Brown’s blog on PLM may remember that I did a post on this very topic a few months ago.  You can read it here.  Take a look at the figure to the right.  It appears that my intuition was right, at least with the preeminence of time-to-market as the number one priority to product development.  However, I was surprised to see that Product Cost Management came in number two in importance, albeit 25% less important than time-to-market (using time-to-market as a base).  Regardless, that is encouraging.  So, one wonders again why more companies don’t have stronger PCM efforts?

Does PLM and/or ERP Help with Product Cost Management?

One of the tables in Michelle’s report shows the effect of a company having PLM and the effect of PLM’s level of integration with ERP on many different performance metrics.  One of those metrics is whether a company meets its product cost targets or not.   Take a look at the chart to the right.  This is very interesting for two reasons.

ERP and PLM Hiller Associates

CLICK to Enlarge: Performance Benefits of Integrating PLM and ERP

First, we see a range of meeting product cost targets of 65%-72%.  Really?  In my own research on about 40 operational companies in many different industries, the mean percent of time that companies meet product cost targets at launch is 20-30% — HALF of what Aberdeen is seeing.  I wonder what the disconnect is in my data versus theirs?

Second, the report shows mean (average) of the respondents that fell in each category on the chart (having ERP but no PLM system, having PLM and ERP but unintegrated, and having both in some level of integration).  As expected, the companies with some level of integration do better, but is this statistically relevant?  What is the standard deviation on this data?  I ask this because the range of answers I get when I ask companies how often they meet product cost targets is from 0-100% of the time.

Is PLM or ERP is Storing Product Cost Data?

ERP and PLM Hiller Associates

CLICK to Enlarge: Data sent from ERP to PLM

Looking at the graph to the right, notice that none of the couple hundred Aberdeen respondents were pushing any cost data from PLM to ERP.  They were pushing some data from ERP to PLM.  I have shown the pieces that they are storing in ERP and pushing to PLM.  One could argue that the “Sourcing Data” that they pushing to PLM may be quite relevant in Product Cost

Management.  However, I wonder how relevant the “Costs / Actual Costs” are to PCM, given that ‘actual’ costs imply old carryover costs, which are fairly irrelevant to new designs or re-designs.

According to Aberdeen, 77% of companies do store “Item Costs” in ERP.  This left me wondering, where are the other 23% of companies storing cost information?  An excel spreadsheet? (have mercy!)

 

There’s a lot more in Michelle’s report than this narrow slice of data on PCM.  So, if you don’t subscribe to Aberdeen’s research, you can sign up or just buy the report.  Great data, though, Michelle.  Thanks.

 

Share
Apr 162012
 

Costing of electronic parts is a whole different ballgame from mechanical parts, most of the time.  While there are certainly custom ASICS and other custom electronic components, for the most part, electronics are more and more dominated by standard components (off the shelf processors, resistors, memory, capacitors, LEDs, etc.).  One person at Morey Corporation who I interviewed for my upcoming book project on Product Cost Management, referred to these components affectionately as “popcorn.”  The ME (mechanical engineer) equivalent of this is the beloved category of “hardware” or “fasteners.”

The good news is that there is a commodity market for these EE (electrical engineer) components.  The “market” drives the cost down for you with many (theoretically) interchangeable vendors of the same part.  This is very different from most mechanical parts, which are unique and must be sourced to specific suppliers for custom quotes.  That’s the good news.

The bad news is that in the fast paced EE world, you have to start worrying about things, such as:

  • Pricing Currency — How do I quickly find the lowest cost whenever I buy these components.  Unlike the non-commodity world, the price will change often and quickly (and typically downward), until the component starts becoming obsolete.
  • Obsolescence — Have you ever been looking for a new USB drive or laptop memory for your old computer, only to realize that the 2 GB stick is MORE expensive than the 4 GB stick?  Well, you have encountered the effect of obsolescence in pricing.  So you might ask, how to I know when the price is starting to rise due to obsolescence, because maybe I’ll make a large purchase at that point?
  • Availability — where do I buy enough of what I need now?

Well, never fear, because the helpful folks over at Arena  (a cloud based PLM provider) and Octopart (a search engine for electronic components) are here to help.  Arena has a new (free) tool called PartsList that works like this:

  1. Download the tool here
  2. Put in your BOM (manufacturer and part number) to PartsList
  3. PartsList will link to Octopart to keep you aware of all pricing and availability, identify alternative sources, etc. goodness

You can also directly search for parts in Octopart.   PartsList is FREE for personal use and, as of 4/6/12, was $9/month for commercial use.  You can read more about PartsList on the Arena blog here article about it.

 

(p.s. Do check out Morey Corporation, if you need hardened and rugged electronics.  Not only are they great guys, but they are the real deal — an AMERICAN MANUFACTURER with design and manufacturing in one building in the good ‘ol Midwest.  They make stuff from advanced telematics to engine computers you can drop off a tall ladder on a cement floor without failure, to power inverters the size of card tables that move big equipment.)

 

 

 

Share
Skip to toolbar