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.)

 

 

 

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Apr 102012
 

 

On the last blog post (Product Cost Management – What is it?), I talked the different ways that my colleagues and I have seen the meaning of Product Cost Management take shape over our careers and PCM’s development.  I offered what I believe is a good operating definition of PCM:

 

Product Cost Management – An agreed, coherent, and publicized system of culture/goals, processes, people, and tools following the product lifecycle, that ensures the product meets its profit (or cost) target on the day that it launches to the customer.

This definition can certainly be fleshed out further.  I was at a conference a few weeks ago and heard a great presentation on social media by Overdrive Interactive. Part of the presentation was showing their map of the social media sphere that has become viral on the internet and the de facto standard many people use to orient themselves to the social web. I really liked that idea, and I’m a big believer in 1-page maps that give the reader an overview of a complex subject, as well as a starting point to dig for deeper detail.

What does Product Cost Management look like from a graphical viewpoint?   I believe that it looks like the attached map (click on the diagram to enlarge the map or DOWNLOAD IT IN .PDF FORMAT.

Like any other major discipline that product companies follow, PCM contains four main areas:

  1. Culture, Goals, and Incentives
  2. Processes (tied to the product life cycle)
  3. Team Structure and Participants (tied to the product life cycle)
  4. Tools/Software that can help

    World Map of Product Cost Management Hiller Associates

    CLICK TO ENLARGE!

Culture, Goals, Incentives – before attempting to put in place any process, people, or tools, the organization first has to ask the tough strategic questions.   Where is our organization today in the PCM journey? To where does we hope to get and by when? And the big question: What is the priority of PCM and how much investment (honestly) will we make to close the gap from between today’s state to our goal? Once the company answers these questions, it can talk about the strategic structures that drive behavior (roles, incentives, and leadership support).

The next two continents on the PCM world map  (PCM Processes, and PCM Tools/Software) follow the product lifecycle, and need to integrate with the company’s product development process. Different processes and different participants are appropriate at different points in the cycle.

Finally, we have the PCM Tools available to take on the journey.  They fall into different buckets as follows:  (a) homegrown tools (including Excel), (b) general platforms (e.g. PLM, ERP) that may be customized, and (c) specialty Best-In-Class (BIC) tools that focus on PCM processes. In the PCM World Map, many of the major BIC software systems are shown in a 2×2 diagram. We’ll discuss the 2×2 in more detail in a future post, but I don’t want readers to think there is a “magic [best] quadrant” in this 2×2. It is simply a descriptive conceptual diagram

One important thing for people who are navigating the map to realize is that Culture, Process, Team, and Tools are all interconnected and influence one another (see the top right in the header of the map). For example, if you are at the beginning of the PCM journey, it is likely that your company is not ready for all the processes shown. It also may only use one or two of the tools. The company may not have reached a capability level to benefit from some processes, people, or teams.  Despite the inter-connectivity of the system, the best place to start when beginning the PCM journey is with the Culture (see blue arrows on the left of the map).

Like all high level maps, there are cities and even countries shown on it that have more detailed maps of their own.  However, most companies would do well to focus on understanding the geography at the world level first, before hoping on a plane to a specific city.  We can worry about street maps once we decide which cities we are going to visit!

 

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