It’s not the club… it’s YOU! (Lean = Vertical Integration = Better Product Cost Management Part 2)
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:
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.
“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.
I happen to agree with your comment, pasted above , However i am not sure where you find true “experts” who are neither retired or planning to do so in the very near future. Personally I was fortunate to have worked for Coleco Industries for 18 years and was able to grow with it from $45 million to $950 million and unfortunately back down to sub $200 (chapter 11) before I left It was a great place to “learn the craft”, however that peaked around 30 years ago.
In fact even then I often bemoaned that there was no other place like it to work and every other US manufacturer was building battle ships and submarines – no one else would make consumer goods and toys that had a very short life span
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”
Wow, I‘ve got to give you a big AMEN for that one. Vertical integration was the key to our success. FYI we were located in the Adirondacks of upstate NY and operated in over 1.6 million sq feet of manufacturing and distribution space. There was no one nearby to help so you were forced to be vertical and self sufficient. “Management by walking around “ was essential.
Thank you for your comments:
REGARDING YOUR COMMENT: “I happen to agree with your comment, pasted above , However i am not sure where you find true “experts” who are neither retired or planning to do so in the very near future.”
ERIC SAYS: That is a good question. I think that companies would do well to hire retired manufacturing, design, and industrial engineers, even on a part time basis to serve as formal mentors and experts on retainer to answer questions and to formerly teach the newer engineers. Another solution is to work with a firm like Hiller Associates. We certainly can do training, and beyond that, we often do the work to go beyond training alone. The ongoing and sustainable solution is to truly examine your product cost Culture, Process, Team, and Tools. Where are you today? Where do you need to get to? How do you map a path between those 2 points and execute? That is what we do.