Jun 112012
 

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.Translating Features to Cost in Product Cost Management Hiller Associates  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.

 

 

  8 Responses to “Where’s Finance and Accounting in Product Cost Management? (Part 1 of Pete Schmitz at Harley-Davidson)”

  1. Moderator re-posting a comment from Linked in group. Original here: http://www.linkedin.com/groupItem?view=&gid=2263672&type=member&item=123339655&commentID=84366920&report%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_84366920

    Robert A. Kinsler, USA, Ret, DAV • I must be one of those financial types that understand PCM and its need for accounting and standard cost data for development. Mainly I use it for many PCMs myself (ABC Cost and procedure studies).

    As a degreed accountant I just know where to go to get the data I need, heck with asking for it from other accounting types on a monthly basis (they always told me they were busy with close procedures).

  2. Robert, I think your comment further proves the point. That you for your interest and insight.

  3. Moderator re-posting a comment from Linked in group. Original here: http://www.linkedin.com/groupItem?view=&srchtype=discussedNews&gid=126939&item=123339502&type=member&trk=eml-anet_dig-b_pd-pmt-cn&ut=3aNem1bhr2I5g1

    Jeff Matthews • Eric, thanks for your insight, please keep them coming on these relevant issues

  4. Jeff, I appreciate the interest and kind words. I love the subject, but it’s definitely work to post the articles. It makes it worth it to know people are interested.

  5. Moderator re-posting a comment from Linked in group. Original here: http://www.linkedin.com/groupItem?view=&gid=3758755&type=member&item=123366227&commentID=84368411&report%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_84368411

    Osamu Higo • Good article, thank you. The practitioner can only describes the real world. As to target costing, needless to say, accounting people must be included.

  6. Moderator re-posting a comment from Linked in group. Original here: http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=123339502&gid=126939&commentID=84415505&trk=view_disc&ut=3mVlCXAvpNIRg1

    Jeff:

    You may be interested in the works of Joe Knight, who works for a machine builder and who wrote the book “Financial Intelligence.” http://www.business-literacy.com/

    Eric: Thank you for the post.

  7. Moderator re-posting a comment from Linked in group. Original here: http://www.linkedin.com/groupItem?view=&gid=2263672&type=member&item=123339655&commentID=97392297&report%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_97392297

    Kalrav Buch: True and timely in the days when my boss has asked me to come up with an effective metric connecting all that engineering does with the MONEY (cost).

    For the design engineers I coach, here is my provocation: When you want to go buy something personal such as car, ipad, iphone, smart TV etc., the first question you ask yourself is -can I afford it (cost), no matter how much you are in love with all the special and fancy features the product has to offer. You will be careful not to hurt your personal financial situation. Why don’t you show the same behavior while designing the product at work? Can your design afford it?

  8. Kalrav,

    Eric Arno Hiller • I will venture a guess.

    In your personal life you are held accountable for all aspects of a decision:

    1. Time-to-Market (when you resolve the problem)
    2. Performance (how well you permanently solved the problem)
    3. Quality and Reliability of the solution
    4. And… cost

    In the corporate world, often people (especially design engineers) only have some of these priorities for which they are responsible. And, if they are responsible for cost, it is not as high or a priority per their management’s spoken or unspoken direction.

    Eric

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