Today, it’s not just about which company has the best product it’s about the company that does a better job controlling product costs
By Eric Arno Hiller, Founder and Chief Product Officer, aPriori
With competition on all sides, design engineers are under increasingly more pressure to create quality products quickly, while meeting stringent requirements for form, fit and function … and, of course, time. Their companies are under pressure too, shareholders want solid returns, profit margins are tight, and budgets are even tighter.
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Without realizing it, design engineers play a critical role in determining their company’s success. That’s because today it’s not just about which company has the best product; it’s also about which company does a better job of controlling product costs.
With the biggest expense for manufacturing and product companies being Cost of Goods Sold (COGS), design engineers are in a unique position to help control that number. COGS is essentially the amount of money needed to produce the products companies sell. At most manufacturing and product companies, the COGS is between 70 and 90 percent of the company’s gross revenues. With COGS that high, a company that could reduce its product costs by just one percent would see its profit rise substantially.
And that’s where design engineers can become the real rock stars at their companies. There’s an old engineering mantra that 80 percent of the cost of a product is created in the first 20 percent of development.
Translation: the design engineering team is responsible for the largest portion of the company’s product costs. But they are also in the best position for increasing corporate profitability if they can reduce the cost of the products their companies sell.
So what’s stopping them? Part of it is mindset; design engineers are focused on form, fit and function foremost. Not profitability. But perhaps the biggest stumbling block to the design engineer achieving rock star status is the difficulty in figuring out how much money their designs will cost to produce, and how much subsequent changes might cost or save the company.
While most engineers have a general idea of how much it might cost to change a product by changing the material, for instance, or adding a hole or rib, a general idea is not precise. The only way to know for certain about the potential cost impact is by generating an estimate or quote, a process that typically requires either calling in a cost expert or having the purchasing department contact suppliers. Obtaining cost estimates can be a frustrating back-and-forth process that might take days or weeks. With deadlines always looming, few design engineers have the luxury of waiting around for quotes.
The net result is that today’s process for generating cost information is inefficient. CAD systems don’t offer a means to generating accurate cost information and because of that design engineers are missing out on examining possible design changes that could ultimately result in a lower cost to produce a design without sacrificing functionality, performance, or quality.
Now, that’s all changing thanks to an emerging category of software called Enterprise Cost Management. Enterprise Cost Management provides design engineers real-time cost information without slowing them down. It lets design engineers better understand the price tag for changes as they are being considered so they can find the optimal balance between functionality, performance, quality, and cost that delivers the maximum value to their customers. They can explore more early design alternatives, routing out cost sooner and resulting in fewer changes later in development when making changes gets incrementally more expensive.
By using an enabling cost management system that unlocks the potential for optimized design and cost by using information directly from their CAD system; design engineers really can be heroes. The enterprise cost management platform essentially acts as a universal translation device. It understands the geometry of each design and the cost ramifications of the processes that would be required for its manufacture.
By incorporating the cost of materials, labor, tooling and other area, the design engineer sees a precise assessment of the cost to produce the part or product. Cost estimates are delivered in real-time as design modifications are made. Remove a hole, add a rib, change a tolerance and the software’s algorithms automatically re-calculate the new cost based on all of the relevant factors for the company.
In enterprise cost management, the CAD system is the primary data source for geometric information, and the software can evaluate geometric cost drivers directly from solid models. Because it allows designers to know at all times with a design will cost and updates instantly any time a change is made, the designer can make more trade-off decisions early in the design process and drive a significant amount of the cost out of the product.
As design engineers know, making changes early on reduces the amount of re-work that will have to be done once the product launches. Routing more cost out up front means there won’t be much cost left to route out on future generations. That allows the design engineers to focus on more new designs rather than revisiting old ones. And when the average design engineer using enterprise cost management software is reducing the costs of the parts and products they work on by 18 percent, those same design engineers will be the company’s real rock stars because of their impact to the bottom line.
Eric Arno Hiller is the founder and chief product office of enterprise cost management software developer aPriori, based in Concord, MA. You can learn more about aPriori at www.apriori.com.