Collaborative Cost Management

Many industrial companies utilize a structured method for product design. Continuous estimation and tracking of the product cost is very important throughout the product development lifecycle. As the product design matures, the cost structure often shifts significantly. There are various reasons for this shift, including:

  • Significant customer requirement changes and
  • Lack of visibility into the impact of design changes on product cost

To address various challenges with respect to cost, we will illustrate and review a method called Collaborative Cost Management (CCM) during the new product development (NPD) process. If a procurement team is not involved in the process from the beginning, supplier selection and price negotiation will be significant challenges to overcome. CGN has explored these challenges, during client engagements. In one such scenario, products were not meeting customer expectations, putting the customer in a position to accept a tradeoff between quality, functionality, and cost. Another scenario was associated with component cost increases, a result of additional functionality added.

Collaborative Cost Management (CCM) has multiple applications across the product lifecycle. Collaboration between cross-functional teams such as, engineering, manufacturing, supply chain, purchasing, suppliers during early product development phase, will help reduce costs through ongoing visibility to overall product cost and targeted initiatives to manage it. CCM helps find innovative ways to reduce costs benefitting all parties.

Once the target price is set for subsystems, CCM can be introduced in phases. Phase 1 - Pre-CCM, Phase 2 – During Design and Phase 3 - Post CCM, when cost drivers are reviewed on the ongoing basis and actions are taken to manage the product cost. The following table shows a structured approach:

 

Phase I Phase II Phase III
Pre CCM CCM Post CCM
Identify part information (Part family, category etc.)
Cost Analysis, Supplier Analysis
Run iterations to identify other cost drivers

 

CCM FRAMEWORK

 


 

Pre CCM-activities cover:

  • Information collection, related to part family and category
  • Establishing target costs by subsystem / major component
  • Establishing baseline cost and process for ongoing review
  • Analysis of scrap, Work in Progress (WIP) on high value add manufacturing process

CCM activities cover:

  • Identification of potential suppliers & supplier analysis,
  • Establishing supplier involvement within the product development process
  • Identification of cost levers and conduct should-cost analysis
  • Run Cost Lever Evaluation Matrix

(Cost Lever Evaluation Matrix is an all-inclusive tool created by CGN to identify cost drivers that is used to optimize design for cost. Matrix covers 4 areas that influence cost: design, operations, location & supplier)

Post CCM-activities cover:

  • Creation of multiple iterations of the cost lever evaluation matrix, to see full opportunities
  • Recording component information, should-cost analysis, supplier analysis
  • Defining and managing cost reduction action items

Benefits:

  • Achieved cost reduction savings of 33% through supplier collaboration*
  • Better price points through a cross functional collaboration approach
  • Cost effective, optimized design and a good quality product

 


 

CCM SUMMARY:

Strengths Short-Term Benefits Long-Term Benefits
1. Cost focus – Early NPD stage
2. Active collaboration within cross-functional teams
3. Captures Cost drivers throughout product value chain
1. Identification of Cost Levers
2. Supports supplier negotiations
3. Improves collaboration across all workstreams (Supplier, Engineering, Purchasing, Supply chain & Operations)
1. Provides direction to strategic sourcing initiatives
2. Product cost efficiencies – margin improvement

CGN brings an all-inclusive CCM methodology where clients are encouraged to have effective collaboration between cross-functional teams during early NPD phase of the product thus bringing significant benefits in product cost and product development efficiencies.

*Note: Prices can only be used to set targets or negotiate when the tools are modeled to a specific manufacturing process and specific suppliers

Sonal Konnur Sonal Konnur
CGN Global
Consultant
Sonal.Konnur@cgnglobal.com
Vlad KrasnovVlad Krasnov
CGN Global
Managing Principal
Vladislav.Krasnov@cgnglobal.com