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INTRODUCTION
Cost Management
Product Cost Management�Influencing the cost
Product Costing�Generating information
Product Cost Controlling�Processing and communication
Types of Costs
Material costs
Material overheads
Production costs
Special
Production costs
Administrative
Costs
Distribution costs
Production overheads
TOTAL COST
Material Costs
Production Costs
Administrative and
Distribution Costs
Manufacturing Costs
This team decides on a particular design. There could also be an alternative with the same functions & requirements, which is less expensive.
This team opts for certain manufacturing products. The cost is often negotiable and there are usually several sourcing alternatives.
This team determines a concrete way to manufacture the product and estimates the cost. It is possible for it to be cost-effective.
Team Involvement
Engineering Team
Production Team
Procurement Team
Marketing
Weight & Disposal
Competition & Distribution
Time & Life span
Environmental impact
Installation
Surface quality
Model series compatibility
Accuracy
Testing Prototypest
Compatibility Quantity
Size & Material
Production steps
Production type & process
Cost
Determinants
Disposal Costs
Product Planning, Development,
Procurement &
Manufacturing
Operating Costs
Training
Maintenance,
Repair Energy
Utilization Costs
Disposal, Dismantling
Recycling, Deinstallation
Sales/ Revenue
Product cost management of the life cycle cost
Total Cost of a Product
Causes of High Costs
Over engineering, high technical effort
Unnecessary functions
Wrong suppliers
High test and inspection effort
Complex product structure
Inconvenient installation
Variety
(customer focus)
Market Influence
Internal Influence
(construction side, shopping)
Cost Factors in the Development Phase
Customer Requirements
Product Specifications
Product Functions
Meaning of Functions
Permissible Target Costs
Planned Variations
Product Functions
Functional Structure
Solution Principle
Purchase
Product Structure
Number of Parts
Components
Standardization, Acquisition Parts
Life Span
Material
Surface Quality
Allowances
Standardization
Purchase
Planning Phase
Conception Phase
Designing Phase
Developing Phase
Continuous monitoring of the development process and cost adjustment
Savings with Cost Management
Avoid spending during product design
Reduced tooling costs
Savings from optmizing manufacturing process selection
Savings during redesign
HARD COST SAVINGS
Time savings in cost estimation and quote response
Engineering time savings to accelerate market launch
Reduced post-launch rework
Widespread manufacturing knowledge among engineering and sourcing
SOFT COST SAVINGS
30-40%
DEVELOPMENT
01-10%
MANUFACTURING
20-30%
AFTER SALES & SERVICE
Cost Reduction Potential
Savings According to Project Phases
Different Systems
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Creating cost estimates without specialized manufacturing or cost knowledge
COST ESTIMATION
01
Documenting & tracking cost management results and KPI‘s
REPORTING
02
Identifying cost outliers and trends; searching large volumes of data
ANALYTICS
03
Overview of costs at any point in the life cycle of a product
COST TRACKING
04
Design to Cost: QFD
Different Systems
DTC: (RE)
DTC: (QFD)
DTC: (TC)
DTC: (VA)
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Design to Cost (DTC Method): Elements
Design to Cost: QFD
Target Costing (TC)
Reverse Engineering (RE)
Quality Function Deployment (QFD)
Value Analysis (VA)
Different Systems
DTC: (RE)
DTC: (QFD)
DTC: (TC)
DTC: (VA)
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Design to Cost: Target Costing (TC)
Design to Cost: QFD
Determines target cost of the product with a systematic approach (target costing)
01
Implements price, features and functions of products based on customers’ wishes
02
Is A market-driven planning tool for products and processes
03
Is A less effective method for new concepts and mass production
04
Different Systems
DTC: (RE)
DTC: (QFD)
DTC: (TC)
DTC: (VA)
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Design to Cost: Reverse Engineering (RE)
Design to Cost: QFD
Reconstructs an exact duplicate of an existing object & is the first stage of benchmarking
01
Examines all construction elements (structure, condition, behavior)
02
compares a product’s performance, function & properties from a technical perspective
03
discloses differences in costs from competitors
04
Different Systems
DTC: (RE)
DTC: (QFD)
DTC: (TC)
DTC: (VA)
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Design to Cost: Quality Function Deployment (QFD)
Design to Cost: QFD
Evaluates customer needs with classified targets (development, production, procurement, quality assurance, sales planning)
01
Examines customer needs, compares competition, assesses dependencies, plans projects as well as procurement & production
02
The product design & development is customer-focused
03
Assesses function and costs
04
Different Systems
DTC: (RE)
DTC: (QFD)
DTC: (TC)
DTC: (VA)
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Design to Cost: Value Analysis (VA)
Design to Cost: QFD
elements: objective analysis, functional cost analysis, brainstorming and evaluation, alternative solutions, cost-benefit analysis, risk analysis, decision preparation
01
examines product function systematically and methodically
02
usually implements by using an interdisciplinary team
03
optimizes costs and product value
04
Different Systems
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Design to Cost: Cost Influence
High
Low
Customer
value
Low
High
Company profit
Target Cost
Function
Finance
Form
Fit
Cost
Influence
Design to Cost: QFD
Different Systems
Design to Cost: Cost Influence
Design to Cost: Elements
METHODS
Design to Cost: Quality Function Deployment (QFD)
Design to Cost: QFD
Correlation Matrix:
options for the company
Design Requirements: �How well does the company take the customers’ wishes into consideration in the production
Relationship Matrix:�How well are the customer needs met?
Importance
Benchmarking
Benchmarking
VOC
(voice of the customer)�What do the
customers need?
Traditional Cost Management vs. Target Costing
Market Research
Product-Specific Features
Design
Development
Material Price
Cost Planning/ Calculation
Production
Traditional Product Cost Management
Market Research
Product-Specific Features
Design
Development
Material Price
Cost Planning/ Calculation
Production
Target Costing
Costs too high. Back to the design phase
METHODS
VALIDATION PLAN
01
POKA YOKE
02
VALUE STREAM MAPPING
03
DESIGN FOR MANUFACTURE AND ASSEMBLY
04
DESIGN-FOR-6-SIGMA
05
PARAMETRIC COST ESTIMATING
06
BOTTOM-UP ESTIMATING
07
DYNAMIC ECONOMIC CALCULATION
08
METHODS
Target Costing: Bottom-Up Calculation
Target Price
Estimated Costs
Product Target Costs
Realized Costs
Conception
Development
Production/ Market Phase
After Sales
Project Release
Start of Development
Start of Production �(SOP)
End of Production �(EOP)
End of Life �(EOL)
ACTIONS TO OPTIMIZE PRICE
Predicted Results
Target Results
Realized
Results
Cost Gap
Profitability Profile for Product Life Cycle
Cost Structure
Market Price
Target Price
Cost Optimization
Target Costs
Competitive Product
Cost Focus
Market Focus
Customer Focus
Product Focus
Company
Internal
Integrated Cost Management
Cost management as part of the strategy; provides cost transparency
COST FOCUS
Prices with certain methods derived from the market
MARKET FOCUS
Knows the customer requirements;�deduces and develops features
CUSTOMER FOCUS
adjust cost management of the development process; ensure that all costs incurred are consistently traceable; check to see if requirements are met
PRODUCT FOCUS
Obstacles in Cost Management
PURCHASE
PRICE
One-time
costs for
transport,
delivery
One-time
costs for commissioning, training
One-time costs
for sustainability
and disposal
Operating costs
for electricity, materials,
technology
Maintenance
& repair costs
CUSTOMER
Delay in market launch
Damage to product quality
Reduced product sales
Poor customer �satisfaction
Decrease in �competitiveness
Obstacles in Cost Management
Planning and definition of actions
Necessary to remain competitive
Ensure profitability and
sustained corporate growth
Meet the targeted savings
Aware of strategic importance and
achieved sustainable success
Not required, since we
dictate prices in our segment
Cost Savings Programs
STUDY RESULTS
Which of the following statements, in your opinion, applies to cost savings programs of your company?
Cost Saving Program by Company Size
Not required since we
dictate prices in our segment
Aware of strategic importance
& achieved sustainable success
Meet the targeted savings
Ensure profitability & sustained
corporate growth
Necessary to remain competitive
Planning and defining actions
> 10,000
1,000 – 10,000
< 1,000
Company Size
Which of the following statements, in your opinion, applies to cost savings programs of your company?
(5 = absolutely, 1 = not at all)
(107 companies surveyed)
STUDY RESULTS
Actions in Cost Savings Programs
STUDY RESULTS
None
Short-time
work
Reduction of
staff & jobs
Lean
hierarchy
Reduction of
investments
Outsourcing
measures
Relocation of dev. &
production to low
wage locations
Modularization,
reduction of variants,
use of common parts
Optimization of
strategy for negotiations
with suppliers
Department specific
budget cuts
Optimization of
Production procedures
and products
Cost Types Gaining Importance Due to Trends in a Company
TRENDS
Which of the following cost types are gaining importance due to trends (in %)?
(89 companies)
R & D
Recycling
Warranty
Admin
Service
Operating
Production
Environ-mental
Abatement
Marketing
& Sales
Material
HR
New Sales and Profit Opportunities
TRENDS
Environmentally friendly products/
"green" corporate image
Lowest product cost
compared with competitors
Focus on competition/ benchmarking
New sales opportunities by
opening new markets
Products tailored to customers’
needs and requirements
Leadership in innovation and technology
Highest quality standards in
production and manufacturing
Which of the following statements, in your opinion, applies to cost savings programs of your company?
(5 = absolutely, 1 = not at all)
What role does product cost management play at your company?
It helps to reduces the additional cost of the manufacturing.
Can savings be determined within the product design?
Yes, it is possible if there are enough research and development on the product.
Can you buy cheaper materials for manufacturing products?
Yes we can because we have bunch of experienced suppliers.
Is the information flow for cost estimates sufficient in all areas of the company?
No, for which we need better information flow.
Can redesigns and product developments be better optimized in costs?
Yes, continuous improvement can help to optimize these process.
Is the cost estimate the most current calculation and clearly recognizable for every employee?
Yes, our SAP collects all the records accordingly.
Questions about Cost Management
CHECKLIST