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!

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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?

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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

Jan 292014
 

We received the following question about Bills of Material (BOMs) from a product development manager:

QUESTION: “How does one balance the need of a BOM to be expedient and fast for real world use, while still trying to make an investment in a universal and reusable bomb?”

That’s a great question for product development teams. Our answer is a series of steps:

STEP 1 – Admit it’s a problem

It may sound like the trite stuff of a 12-step program, but the first step to recovery is admitting you have a problem! There’s nothing wrong with having a problem, and in fact, solving problems is what we went to engineering school to do, didn’t we? Some people will tell you that you can have it all (usability and re-usability) in your BOM structure instantly and without conflict. That’s delusional, but we can make incremental progress over time.

STEP 2 – Define the problem

Going back to our school days, the first thing we would do in our statics or dynamics homework would be to list the forces that are active. There are at least two forces in play, and for the most part they are directly opposed to one another:

  1. Functional Universality / Re-usability – we would like to have a universal BOM that can be re-used and easily modified to work for each product.
  2. Expediency / Practicality – We have to ship the product out the door on a certain timeline. The BOM has to be easy enough to use that we can modify it quickly so that we can get our “day-job” done.

STEP 3 – Recognize that the equilibrium point is dynamic over time

Where we start out on our journey of practicality vs. universality in the BOM is not where those forces may end up in the future. The equilibrium point between those forces will change over time.

In Figure 1, we see that initially the force of expediency/practicality is stronger. Therefore, at first our BOM will mostly focus on the needs of today, rather than the needs of tomorrow. However, over time we can reduce some of the immediate pressure to ship product, because we have invested in the bill of material. The equilibrium point is driven to the right on Figure 1 toward a more universal BOM, which is still practical and expedient for our daily use.

Figure 1 Balancing BOM Usability vs. RE-usability

Figure 1 Balancing BOM Usability vs. RE-usability
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STEP 4 – Knowing the equilibrium point at any point in time

How do we know how to balance the two forces at any given point in time? The recognition of a third force may actually help us simplify the problem. That force is the needs and goals of our management team in the company.

The management team is certainly interested in shipping the product for immediate revenue and profit. However, they are also responsible for stable growth of the company over time. Management needs are a downward pressure that we can use to our advantage, just like the Romans did with their brilliant discovery of the arch.

Figure 2 represents such an idealized arch. The forces of the needs for universality vs. practicality are pushing against one another. Without a third force, certainly the structure would tumble. However, with the third force of management needs, it’s much easier to balance the two forces and know where that equilibrium point is at a given point in time.

Figure 2 Balancing BOM Usability vs. RE-usability with Management Pressure CLICK to ENLARGE

Figure 2 Balancing BOM Usability vs. RE-usability with Management Pressure
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Figure 2 – The down force of management decision making

STEP 5 – Make sure you have a solid keystone

What is the keystone in the arch? The keystone bears the pressure of all three forces and balances them. The keystone in our process is a thoughtful and dynamic owner of the bill of material structure. This might be a consultant, a specific person who specializes in product lifecycle management, or the product development manager. Whoever it is, this person or team should be able to view the opposing forces not as forces that will crush them, but as forces that will help them balance each other.

 

As with any problem in the real world, unfortunately we’re not dealing with a precise science here. However, hopefully this expansion of our framework will be a way to think about making progress, as you balance usability vs. re-usability in your bill of material structure.

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This post is 3rd in a series of posts on ENGINEERING.com about Bills of Materials (BOMs). The first outlines the importance of managing the BOM: Dr. Strangepart: How I Learned to Stop Worrying and Love the BOM. Next is a framework of how to build re-usability into the BOM: Form, Fit, and Function – A Framework for your Bill of Material.

Jan 272014
 

Continuing , the series on the Bill of Material we began with the article Dr. Strangepart: How I Learned to Stop Worrying and Love the BOM, here is a full re-print of the next in the series.  You can find the original at ENGINEERING.com here:

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In my post Dr. Strangepart: How I Learned to Stop Worrying and Love the BOM, we began talking about the extremely complex process of managing the bill of material (BOM). That discussion focused on intelligent part numbers, but today I want to move to the question of whether the BOM is primarily keyed off of the functional use of a part or the specific part number itself. This is a tension that has existed since bills of material were created, when man married an axle to a wheel.

Why do people care whether the BOM is driven by part numbers or the part’s function? The answer is that each has certain advantages. Driving the BOM by actual part numbers is very useful for purchasing and manufacturing, and when an engineer is focusing on an individual piece of hardware. However, when the engineer or a product manager moves from one product to another, a function driven BOM allows him to compare components more easily.

The ability to compare BOMs has huge implications for the ability of engineering to successfully re-use parts. Re-use lowers both the cost of the hardware itself (by re-using tooling and increasing production volumes) while also reducing the engineering time needed to design a new part. Re-use has been the great white hope of the engineering community from time immemorial, but it is very challenging.

Although Product Lifecycle Management software vendors talk about re-use, most companies do a very poor job. Trying to manage re-use without intelligent part numbers and a functional way to look at the BOM is like searching for a single item in a hoarder’s basement that’s jammed full of boxes with no labels. Eventually you give up, go to the store, and buy a new one! That’s one of the big reasons why re-use has struggled in the engineering community.

So, how do we balance the tension between these two things? Here is a simple framework for thinking about the BOM that I call Form, Fit, and Function.

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Figure 1 CLICK to ENLARGE

By function, I mean what the part is actually doing, what its purpose in life is. By form I mean the specific piece of hardware or part that we’re dealing with. In Figure 1 there is a simple example of how function and form relate to each other. Typically, the superset will be function. The function in this case is to provide rear vision to a driver of a vehicle. The function is the result of the part operating correctly. The part itself is the form that “delivers” that function. In this case, we might provide rear vision by designing a mirror, a camera, or some sort of sensor.

The third part of the framework is the fit of the part. However, by fit I don’t mean the actual geometric tolerances or real estate that the part occupies. What I mean is, “What are the unique attributes of the part that make it “fit” the function, i.e. accomplish the function?”

Figure 2 shows another example of a functionally controlled BOM. In this case, we’re using an example of the propulsion of a vehicle, perhaps a jet aircraft. In this case we show propulsion as a top level Function, along with sub-levels of the powerplant, how the power is transferred, and the cooling system.

Hiller Associates Form & Fit Functional BOM

Figure 2 Hiller Associates Form & Fit Functional BOM Example
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The coolant is the Form that satisfies the Function of the cooling system. We assign an intelligent part number for the specific coolant. One might ask, when do I move from a Function to a part number (Form)? The answer to that is, whenever it is convenient. It will take a little bit of time for your team to develop a functional BOM that has a manageable level of hierarchy in it.

TIP: Any more than three or four levels of hierarchy can be very difficult to manage.

There is a many-to-many relationship between the Function and the Form (part). Depending on how far down the Function tree we go, we may need to attach more than one Form (part) to satisfy a function. On the other hand, if our functional tree is deeper, on certain products there may be one assembly (Form) that satisfies more than one Function on the functional tree.

Moving to Fit, we see that each Form may have multiple attributes (ways of fitting the function). The coolant “fits” our functional need by the attributes that it has. In general there will be a one-to-many relationship between Form (part) and Fit (attributes) respectively.

Form, Fit, and Function is a simple way to look at how we structure our products. It lends itself well to re-use of parts, but also for the re-use of work break down structures that are used in aerospace and defense.

Some companies are now working on constructing skeleton “Starter” or “Universal” BOMs that they re-use for each new product. The idea is to start with a generic BOM, and then add and delete to match the needs of a new product. The goal is for the company to have one universal BOM, or one for each unique product group.

This is a great idea in theory, but it’s not trivial to execute. To do this in your own company will likely take your engineering team, product management, and a consultant a year or more to find a structure that suits your needs. However, once this is done, the speed and re-use advantages should be significant. Hopefully, the Form, Fit, and Function BOM Framework will give you a simple way to think about it!

Jan 232014
 
BOM Away from Hiller Associates

Yesterday, we began a series of articles at one of our media partners, www.ENGINEERING.com.  Instead, of focusing on Product Cost Management, we are focusing on another maddeningly difficult problem with critical implications to the Firm:  structuring the Bill of Material to promote ease of use… and re-use.  We will reprint the article below, and you can view the original here:

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A few months ago, unleaded client and asked me an interesting question.   That question was how does one reconcil the tension between specific parts or hardware vs. the functional use in the product of those parts.    This client was from a major fortune 500 company with a bill of material (BOM) containing thousands of parts on each product.  I was a bit taken aback, at first, by this question.  Although it is a very difficult question and subject, I assumed that most major companies were old hands at dealing with this tension.  I was wrong.

This reminded me that something that might seem old hat or common sense to one person, might be very interesting to another.  For example, when I graduated from the university and went to work for Ford Motor Company, I was taught that the Ford part numbering system.  Ford uses a system for parts that is an intelligent part numbering system, in which the part number makes it obvious which product programs , functional type of hardware, and what version of the part is being described

Hiller Associates - Intelligent Part Numbers

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This system of numbering parts has been around for goodness knows how long.  It is no great secret in the auto industry.  I’m sure every person at Chrysler, GM, the foreign auto companies know the Ford system of numbering parts.  In fact, apparently , eBay even teaches us about the Ford part numbering system.  It’s very straightforward and makes complete sense.  As a young engineer, fresh out of school, who didn’t know any better, I assumed that every company had a similar intelligent part numbering system.  However, when I gained a little bit more experience and maturity, I realized that Ford’s ingenious but simple system was not so common sense at all throughout industry.  In fact, most companies I have met in manufacturing have nothing more than a sequential part numbering system that tells nothing about the part for which you were looking.

The point here is not for me to glorify the Ford part numbering system.  I’m sure there are companies with even better and more intelligent part numbering systems out there.  In fact, we don’t even have to go back into the horrors of the group technology fad in the late eighties or early nineties to know that!  No, my point is that relatively simple and logical ways of classifying (but not over classifying things!) on the BOM can really help us in our management of engineering parts and the product.

Therefore, in the next few weeks, I plan to post a series of articles that talk about these ways that we can view the bill of material and help ourselves and our company.  I look forward to hearing what other experts in the product life cycle management will have to say in comments.

Apr 222013
 

 

Good Morning PCM world,

Another reader sent in questions with respect to the article 2012 revenues of the Product Cost Management market.   However, this question was a little more broad:

 

Is there any difference between Project cost management and Product cost management from your your point of view?

That’s a very simple but good question.  We had not considered addressing it before the question came in.  The short answer is “YES!,” there is a big difference.  The big difference is as simple as the two words:

PRODUCT vs. PROJECT

We have defined Product Cost Management before here as:

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.

The definition of “Project Cost Management” is more murky.  The wiki entry on Project Cost Management is less than satisfying.  Here is the main definition portion of the entry:

“Project cost management (PCM) is a method which uses technology to measure cost and productivity through the full life cycle of enterprise level projects.[citation needed] PCM encompasses several specific functions of project management that include estimating, job controls, field data collection, scheduling, accounting and design.”

Other resources for a definition are Ecosys EPC, the Project Smart blog, Hard Dollar Software, and TutorialsPoint.  Based on the knowledge from these sources, we would define Project Cost Managemenet as:

Project Cost Management – Project cost management is a group of techniques, including budgeting, forecasting/estimating, change control, field data collection, scheduling, accounting and design, and reporting that are used together to ensure that a project is completed at its target cost and on schedule.  It is most often associated with the construction industry.  In construction projects, it would include tracking of both project costs and the costs of the materials for structure being built.  In the world of manufacturing, it would only include the costs of the project such as R&D and SG&A.

Note that in the definition we make a distinction between two very different industries:  Manufacturing vs. Construction.  In construction, we are most often making one thing — some sort of structure WHILE we are in in the midst of the project itself.  In manufacturing, we are undertaking the project in order that we make many copies of a product in the future (when production begins).  In manufacturing, we call the project, “Product Development,” including sourcing, testing, design, manufacturing planning, etc.   In manufacturing, which is our primary focus on this blog, there is a fundamental difference in Product vs. Project cost management that goes all the way to the income statement itself.

Income Statement and Product Cost Hiller Associates

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See the figure to above to understand the focus of Product vs. Project Cost Management on an example income statement for a manufacturing company.  The question then probably arises in everyone’s minds:  Do we need both and which one is more important?  That’s beyond this article, but maybe we can talk about it further in the future, if there is interest.  We’ve left you some clues to answer those questions yourself in the figure above.

In the meantime, somebody call the Project Cost Management guys and tell them they are infringing our acronym!  Everyone knows that the *real* PCM stands for PRODUCT Cost Management!

 

 

Feb 192013
 

IndustryWeek.com has just published a new article authored by Hiller Associates title:

Product Selection versus Product Development (What the product development team can learn from shopping on Amazon.com)

 Synapsis:

The process of product selection that people do in their personal lives (e.g. shopping on Amazon) is strikingly similar to the process of product development that people encounter in their professional lives. Interestingly, people are often better at making the complex decisions associated with product selection than they are at similar decisions in product development.

There are three things we can learn professionally from our product selection experience on Amazon:

  • Make the priority of your product attribute needs clear.
  • Simultaneously and continuously trade-off attributes to optimize the products value.
  • Information about the product only matters if it is urgent, relevant and/or unique, not just “new.”

 To read the whole article, simply click on the link above to go to www.IndustryWeek.com, or simply continue reading the full text below.

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Product Selection versus Product Development

What the product development team can learn from shopping on Amazon.com

We just finished the biggest shopping season of the year from Thanksgiving to Christmas.  A lot of people were making a lot of decisions about where to spend their hard earned money – mostly for the benefit of others with gifts.   During that same period design engineers around the world were rushing to finish up pressing projects – and, probably as fast as possible, because they had a lot of vacation left to use, before the end of the year.

We make decisions every day in our personal and professional lives.  But, do we make decisions the same way in both worlds?   I don’t believe so.   People might argue that decisions made at work involve much more complexity.  After all, how much product development is really going on in most homes?  However, a lot of product selection is going on in people’s personal lives.  When considering complex product purchases, product selection starts to resemble product development in many ways.  Let’s take a look at how people (including design engineers) make decisions when shopping (product selection) vs. how they make decisions in the corporate world (product development).

Consider the ubiquitous Amazon.com.  Customers’ product selection experience on Amazon is overwhelmingly positive:  Amazon scores 89 out of 100 in customer satisfaction, the top online retailer score in 2012.  But product selection is *easy* right?  Wrong.  Look at Figure 1.  Product Selectors on Amazon must consider multiple product attributes and, moreover, these attributes mirror the considerations of a product developer very closely.   Product Selectors must consider performance, cost, delivery time, quality, capital investment, etc., without any salesman or other expert to guide them.   But the really amazing thing is that the Product Selectors using Amazon are able to both prioritize these product attributes and consider them simultaneously.

Product selection on Amazon Hiller Associates

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So, how do the same people who are Amazon customers typically consider product attributes in the corporate world?  Very differently is the short answer, as we see in Figure 2.  First of all, people at work do not tend to trade-off product attributes simultaneously, but in series.  Moreover, often each functional group in a product company (marketing, engineering, manufacturing, etc.), tends to be concerned with one dominating attribute, almost to the exclusion of other product attributes.  How does the typical series-based consideration of product attributes that is common in the corporate world compare to the simultaneous trade-off approach that the customers of Amazon use?   Exact numbers are difficult to find, but some sources say only 60% of products are successful.  While not a precise comparison, the difference seems meaningful:  Amazon scores 89 of 100 on the customer satisfaction index, whereas product companies have 60% successful products.

product development in series hiller associates

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Why is this?   Don’t people get college degrees to be great product engineers, buyers, etc.?  Don’t they get paid well to do these jobs?  In contrast, most people have limited knowledge of the products they select on Amazon and spend hundreds or thousands of their own dollars to buy them.

There are at least three reasons why the product selection and product development processes differ, and the corporation can learn from all three.

Clear attribute prioritization

Which product attribute is more important:   time-to-market, product cost, or performance?  There’s no right or wrong answer, in general, but there is a right answer for any given situation.    The question is: does the product developer KNOW the priorities of different attributes.  As an individual shopper, you may not explicitly write down the prioritization, but you know it. Your preferences and value system are welded into your DNA, so it is clear.  However, companies are not individuals, but collectives of them.  It is the responsibility of the product line executive to make these priorities clear to everyone.

This is similar to requirements engineering, but at a strategic level.  Requirements are typically specific and only apply to a narrow aspect of the product.  I am talking about the high level product attribute priority.  Ask your product line executive:  “In general, as we go through our development, what should typically ‘win’ in a trade-off decision.”  If the executive cannot give you a concise and simple answer, he has some work to do to earn his big salary.  For example, he should be able to say something, such as “We must meet all minimum requirements of the product, but we need to get to market as fast as possible, so we meet or beat our delivery date.  Oh, and we need to keep an eye on product cost.”

The product executive needs to write the priorities down and share them with all.  In this case, he might write:

  1. First Priority: Time-to-market
  2. Constraint: minimum performance requirements met
  3. Second Priority:  Product Cost

This doesn’t mean the product executive will not change the priority later as the conditions change, but for now, the whole organization is clear on the priorities.  This sounds very simple, but most people in product development are unsure of what the clear priorities are.  Therefore, they make up their own.

Simultaneous attribute trade-off and value optimization

The second thing that we learn from Amazon shopping is to consider all the constraints and targets for product attributes simultaneously.  As we see looking at Figure 1 versus Figure 2, people naturally do this on Amazon, but organizations typically let a different priority dominate by functional silo.   There are often arbitrage points (optimums in the design space) that will allow excellent results in one attribute, by only sacrificing minimally on another attribute.  For example, the product executive may have said time-to-market is first priority, but he is likely to be happy to sacrifice one unit of time-to-market for an increase of 10 units of performance.  This doesn’t mean that the organization is changing their priorities, but that the strategic priorities discussed above simply function as a guiding light that the product development team pivots around to find the point of maximum value for the customer.

Filter for relevant information, not just more or new information

Recent research is revealing the dangerous downsides of our always-on, always-new, always-more information society.  To be sure, social media, like all technologies has the potential for adding a lot value.  The question is: do you control the information or does it control you.  The research featured in Newsweek shows three problems that have grown in importance over the last decades:

  • “Recency” Overpowering Relevance – The human brain tends to vastly overweight new information in decisions vs. older information, and our modern digital world throws tons of new information at us.
  • Immediacy vs. Accuracy – the flip side of the first problem is that real-time nature of our online world pushes people to make quick decisions.  Accuracy and thoughtfulness are seen as inefficient delays, especially in today’s corporate environment.
  • Information Overload – More information does not lead to better decisions according to research.  Humans quickly reach a point where people make bad decisions because they have too much information.  They cannot process it all and do not properly filter it.  The brain literally shuts off certain processing centers, which causes bad decisions.

What can Your Product Development Team Do to Promote Better Decisions?

To answer this, let’s first ask how Amazon is able to overcome these challenge.  To overcome the Recency vs. Relevancy challenge, Amazon ensures that recency is not the default option for the display of Amazon customer reviews.  Instead, helpfulness of the review (relevance), as judged by other customers, is the default order.  Amazon does not push immediacy.  There are no annoying pop-ups offering a deal, if you buy in ten minutes. Certainly, Amazon does make buying easy and fast, but shopping at Amazon from the comfort of one’s home is a relaxing experience that promotes thoughtfulness.  Finally, Amazon does not overload the customer with information. This is no small task, given that Amazon may offer literally hundreds of items to the customer among which he must decide.   Amazon does this by presenting the information on a huge variety of products in a standard way, and by providing simple and powerful filters that discard large amounts of extraneous information.

In order to overcome these new information challenges in your own product development work, ask yourself these three questions:

Information relevance in product cost hiller associates

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  1. Relevancy – How relevant is this new information.  If I had received this information on day one of my design cycle, how much of a difference would it have made in my decisions up until now?  Is the information relevant or just “new?”
  2. Urgency – Do we need to make this decision today?  How long do we have to consider the problem before the decision must be made?
  3. Uniqueness – Is this new piece of information truly unique or just a variation of something I know already?  If it is a repeat, file it mentally and/or physically with the original information, and forget about it. It is it truly unique, consider whether the new information would be a primary influencer of you design or not.  Most of the time information is just that: information, not relevant unique knowledge.  In this case, once again, file and forget.

The world of online journals, social media, corporate social networks, and interconnected supply-chain applications is here to stay.  It brings a world of new opportunity for better and more up to date information for product development.  It also brings a deluge of extraneous information, and we need to accept this and learn to manage this.  Amazon.com manages these challenges well.  Your product development team can manage these challenges too using the principles outlined above.

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 answerstoquestions@hillerassociates.com.

 

 

 

 

 

 

Nov 052012
 

 

Last week, Hiller Associates published an article in Tech-Clarity with the title:

PRODUCT COST MANAGEMENT AS A LINK BETWEEN ENTERPRISE SYSTEMS

Here’s an outline of the article:

  • Siemens PLM recently bought Perfect Costing Solutions from Tsetinis & Partner.  What does this mean?
  • To answer this, let’s first ask, what IS Product Cost Management and what does PCM software really “do”?
  • Now that we know what PCM software really does, who would value this in the Enterprise Software world?
  • There are look’s of possible categories of enterprise software that could value PCM software, but the most likely are PLM and ERP.
  • Product Cost Management software  is really a bridge linking the engineering language of physical things to the rest of the organization (purchasing, supply chain, finance, manufacturing, etc.) who primary speak the financial language of dollars.
  • If independent PCM software companies are not bought by a large PLM or ERP player, what are the other possible options for their future?

Here’s a teaser diagram from the article, just because who doesn’t like maps?

Product Cost Management Bridge from PLM to ERP Hiller Associates

Click to Enlarge! The position of PCM Software in the Enterprise World

 

My thanks to Jim Brown and Tech-Clarity for the publishing platform to discuss this subject – Eric Arno Hiller

Sep 112012
 

Today is a day of solemn remembrance for Americans and many around the world who remember the 9-11 attack on the the United States of America.  However, there is at least one person who likely quite happy today for a very different reason: Andreas Tsetinis. Siemens Acquisition of  Tsetinis Perfect Cost Hiller Associates   Andreas is the Founder and CEO of Perfect Costing Solutions who makes Tsetinis Perfect Pro-Calc and Perfect Calcard.  In the biggest Product Cost Management (PCM) news of the day, Siemens PLM (specifically the Industry Automation Division) has announced the acquisition of Perfect Costing Solutions.

What is Tsetinis and What are Its Products?

For those of you who are not familiar with Tsetinis & Partner (parent of Perfect Costing Solutions), it is an integrated product cost company of software tools and consulting services. Siemens Acquisition of  Tsetinis Perfect Cost Hiller Associates Many people consider the software tool side of the Tsetinis business, Perfect Costing Solutions, the recognized market leader in Europe for the PCM.  In the last couple of years, the product Perfect Pro-Calc has also been making inroads in the US.  Perfect Costing Solutions makes two software products:

  1. Perfect Pro-Calc – This is a cost estimation tool used primarily by costing experts.  It is fed by manual input that allows predictions of cost for mechanical and some electrical parts.  Perfect Pro-Calc also includes that ability to roll up costs in a hierarchical BOM structure that the user defines.
  2. Perfect CalCard – This is a software focused on capital tooling (injection molding, casting, and stamping) cost estimation by tooling experts.  It has the capability of accepting 3d solid CAD models as input to the costing process, although, I am personally not aware how advanced this ability is.
Per the Perfect Costing Solutions website, “today over 240 companies in the automotive sector and other industries successfully use our products.”  Perfect Costing Solutions has 50 employees according to the Siemens press release.

What does this mean for Product Cost Management?

Product Cost dominos Hiller Associates

The last year, starting from September of 2011, has been a very eventful year in Product Cost Management.  First, Solidworks unveiled its first foray into the PCM world:  Solidworks Cost — the first tool, besides aPriori, that can cost parts directly from geometry.  Then PTC announced Windchill Cost.  Windchill is not a cost generation tool, but is a cost management / roll-up tool that builds off of Windchill.  It allows customers roll-up costs generated by other softwares or methods and track and analyze these costs.  Now we have the very first Product Cost Management acquisition (Perfect Costing Systems, Gmbh) by a major Product Lifecycle Management player (Siemens).  This begs many questions, among them:

  • Will the PLM companies begin to dominate the PCM space and crowd out the pure plays?
  • Will Siemens attempt to build CAD Feature Based Costing abilities into Perfect Pro-Calc?
  • What does this mean to PCM software companies; will other players acquire specialized PCM software companies?

I am going to see if I can get an answer to these questions.  In an eerie coincidence, just this week, Jim Brown of Tech Clarity and I were just discussing me writing an article about where Product Cost Management might settle out in the enterprise software landscape.  It sounds like it’s time for me to write that article…

What does the rest of the PCM world think about the Siemens acquisition of Perfect Costing Systems.  Please let us all know by commenting!

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.

 

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