I just read the article “Putting it All Together at Harley-Davidson” in the July 2012 [July??] Blue Heron Journal. The article is a profile on Pete Schmitz, a Honda veteran in Product Cost Management, who now works at Harley-Davidson. According to the article,:
“[Schmitz] combines procurement, design, manufacturing and cost expertise in a unique job function. Reporting up ultimately to Harley’s CFO, Schmitz describes his ten year Finance Product Cost Manager position as ‘the cat bird’s seat…we are the neutral third party in product development – getting the whole organization to work together.”
That perked up my ears right away. As many of our readers may know, Harley Davidson is a classic case study in the positive effects of successful Product Cost Management. It was an exciting article to me for several reasons. I would like to explore them in the next few days in some shorter posts. The first insight that I gained from the article is the following:
Finance Must be Involved with Purchasing and Engineering
According to the article, Harley is at the mature stage of Product Cost Management making their efforts truly cross-functional. Specifically, the finance (maybe accounting too?) people are involved directly with the engineering and purchasing groups. That is impressive. If you are familiar with Product Cost Management efforts, you know how difficult it can be just to get engineering and purchasing to work together. However, getting finance and accounting meaningfully involved is even harder in my experience. That is unfortunate, because often finance and accounting have so much of the existing data that the cost management team needs to make valid cost models, do spend analytics, etc.
I am not sure why finance and accounting often shy away from participating in PCM efforts. My own experience is that the finance and accounting people are uncomfortable with the very physical world that includes the Bill of Material (BOM) and purchasing commodities. Moreover, the PCM team often needs to recalculate overhead and other financial rates to be RELEVANT for cost management analyses. This recalculation is is very different from the RELIABILITY focused, acceptable financial accounting viewpoint with which the accounting team is comfortable. That is just a general guess from my experience over the years, but maybe a reader can provide more insight. Regardless, I would urge more finance and accounting folks to step out of their comfort zone in the financial world to participate in the physical world with engineering, purchasing, and manufacturing.
Translating from the Physical World to the Financial
At the end of the day, isn’t translating the physical into the financial what Product Cost Management is about? I actually wrote one of my first blog posts in 2007 about this concept for Jason Busch at SpendMatters. The article is called What’s The Language of Your Business? It’s very helpful to ensuring a good translation when experts in all languages are present during the translation work. Ergo, both the people that speak physical (features, functions, BOM, machines, and supplier) and people who speak financial (dollars, overhead rates, internal rate of return, net present value) need to be around the table to make sure nothing is lost in translation.
See you again soon with part 2.