2012 December » Hiller Associates Product Cost Management

New! Product Cost Management Survey – Participate now!!!

Dec 182012

Hiller Associates has teamed up with CIMdata , a global leader in Product Lifecycle Management consulting and PLM industry analyst coverage to bring you the first annual Product Cost Management Survey.

It takes less than 10 minutes and you will be rewarded by receiving a free copy of the results and report of the learnings that we gain about product cost.

Product Cost Management Survey

http://www.esurveyspro.com/Survey.aspx?id=03984de4-e017-455d-914b-507bb529c308

Design-to-Value versus Design-to-Cost versus Minimum Viable Product

Product Cost Management, Product Management 2 Responses »

Dec 102012

I just read an article on the site “Strategy + Business” called Building Cars by Design. It caught my eye for two reasons. First, the fact that a strategy site would deign to talk about engineering concepts was a pleasant surprise. Second, the article discussed Design-to-Cost and Design-to-Value.

If we strip off the automotive context, the main premises of the article from a Product Cost Management point of view are as follows:

Design-to-Cost means designing a car to a specific absolute cost
Design-to-Cost is bad because it does not take into account “value”
Design-to-Value needs to be used instead of Design-to-Cost, i.e. the product company needs to think about what features that customers value and then deliver these.

I applaud the authors for opening up a discussion on these topics. However, I feel this article is incomplete and does not tell the whole story about these concepts. It also doesn’t really say how to do any of these things or point the reader to somewhere he can further learn how. Here’s my specific suggestions for improvement.

Define Design-to-Cost properly, please – Maybe this is just a bit of nomenclature nit-picking, but I have never thought Design-to-Cost means designing a product to a specific cost. That is what “Targeting Costing” advocates. Design-to-Cost is about considering cost as a design parameter in your product development activities. I.E. the design engineer balances cost with other goals (performance, quality, etc.) with the goal of delivering any group of features at the lowest cost possible.
Define How to Calculate “Value” to the Customer – The authors say [paraphrasing] that a company should *just* find out what the customers value and then design a product that delivers those things. I am sure most companies do want to do this, but they don’t know HOW. I realize that how to calculate value is too complex for the article, but the authors don’t even provide a resource for the reader to learn more. For example, I studied under Dr. Harry Cook and I am a friend and business colleague of Dr. Luke Wissmann. At very least, the authors could have pointed the reader to a book on the subject, such as the one Wissmann and Cook wrote: Value Driven Product Planning and Systems Engineering.
What if the Customer Can’t Afford the Value? – It’s difficult to know what the authors mean (even theoretically) by design-to-value. Regardless, the authors seem to assume that the customer can always afford this value, but I don’t believe this is true, especially in the a second or third world context, which is the focus of the article.

Regarding the last point, I will do my best to illustrate the problem. Take a look at the figure below in which I graph the value the customer gets from the product versus the price the customer pays for the product. Presumably, the authors in the article are saying that customers would be willing to pay up to the point that the slope of the value/price decreases substantially (the curve flattens). But, that assumes the customer has the money to spend – kind of a Field of Dreams Strategy, i.e. “If you build in value, they will pay.”

Product Value versus features and cost Hiller Associates

Click on picture to ENLARGE!

But, what if the customer truly does value a set of features, but he just doesn’t have the funds to purchase all of the value? In this case, we have to concede that there is a Minimum Viable Product (MVP) needed for the customer to purchase. This term, MVP, is most often used in software development and start-ups. It is the minimum set of features and functionality that a product must have to have ANY value to the customer. If you can’t master design-to-cost in your product so that it both includes the MVP features the customer needs and allows you make adequate profit under the price ceiling of your customer, the product will not be successful.

If the customer has less funds than the MVP to deliver in your product, they can’t afford it. Similarly, even if the customer has more funds than the MVP requires, but less than when the value/cost curve flattens, you cannot employ a blind strategy of maximizing value to the flattening point of the curve and price near it. You are still going to have to set your price below your customer’s funds to succeed.

So, are the authors of the article talking about design-to-value to the point that the value/price flattens or to the point where the price ceiling of the customer intersects the curve?

Anyone? Anyone? Bueller? Bueller? Bueller?

Should your kids go into manufacturing – CNN says… NO.

American Manufacturing 34 Responses »

Dec 032012

A couple of weeks ago, AJ Sweat posted his article entitled Guess What, Kids? You Don’t Really Want A Job In Manufacturing, which is AJ’s analysis of CNN’s Best Jobs in America. His lament is obvious – apparently manufacturing was not considered in this list, or it was, and it just was not desirable. This article drew me like a moth to a flame for two reasons. First, I love data! Maybe it makes me think of happy days, rushing to the U.S. News rankings as a college student to see how my school fared, but I am really susceptible to a list, even based on pseudo subjective data. Second, it was a about manufacturing,

CNN used the following criteria to judge the desirability of a job.

personal satisfaction
low stress
benefit to society
flexibility

In AJ’s opinoin, only one job on the CNN list is related to manufacturing. I thought, “surely this cannot be true!” So, I’ve done my own analysis. Here is my criteria. First, I considered manufacturing fairly broadly. If you developed and made a physical product, be it cars, computers, or a cancer drug, you are part of “manufacturing” in my opinion. Second, I consider software development to be a form of design and manufacturing, even though it is not physical. I binned the 100 CNN ‘best’ jobs into four categories:

Direct Manufacturing Relation – someone who is on the manufacturing floor be it manufacturing, assembling, managing (a foreman), or direct support (e.g. manufacturing engineering)
Product Value Chain – these jobs are not on the manufacturing floor but are in the direct chain from when a product is just a twinkle in the eye until the start of manufacturing. This category also includes jobs between manufacturing and the distributer or end customer. Examples would be engineers, software developers, purchasing, or direct sales.
Corporate Support Function – other typical jobs in a product and manufacturing company (e.g. IT, HR, accounting, marketing, finance, etc.) that are not part of the product value chain.
Non-Manufacturing – Everyone else. FYI, this is where I put almost all the consulting jobs on the list.

Here are my results:

Lack of good manufacturing jobs Hiller Associates

Click image to ENLARGE the graph!

I am forced to agree with AJ, sadly. I can only find ONE direct manufacturing job, but I find more in the Product Value Chain than he did. Even adding these, we only have 19 jobs – less than 20% of the CNN Top 100 jobs list.

The should be extremely concerning to the success of America in the future, if it is indeed true that these are the jobs people will be seeking. According to Manufacturing Executive, the 17 million people who are in manufacturing companies in the US produce $1.7 trillion of GDP (11.7%). Manufacturing also funds two-thirds of private research. So 5.6% of the US population produces 11.7% of the output. The people in manufacturing are TWICE as productive as the average person, in terms of the GDP they produce for the US.

I’d like to leave you with Hiller’s three manufacturing maxims, that I hope to explore in further articles:

Services exists to service manufacturing; manufacturing does not exist to service services.
Real value is created by growing something, mining something, or manufacturing something.
Manufacturing and technological superiority are what make and keep a nation a superpower.

America needs to internalize these maxims. It needs to stop just talking about helping manufacturing in Presidential commissions and initiatives and start DOING something to realign the focus of America where it should be: design and manufacturing.