There are a number of reasons why discrete manufacturers have been forced to take a “rear view” look at product costs, such as evaluating and allocating product costs well after production was underway. Cost information in most organizations is fragmented throughout the enterprise. Critical pieces of cost information are spread across independent silos within an organization in different functions like engineering, planning, manufacturing, sourcing, finance. This situation typically results in estimates that do not include all relevant information required to make accurate and predictive product cost assessments.
According to Frank Azzolino, President & CEO of aPriori, the Massachusetts based Cost Management Platform company, “In most organizations product cost estimates are developed by specialized organizations in cost engineering or VA/VE departments. In most cases, these cost estimates are created separately and independently of the people making the design, manufacturing, and sourcing decisions. This separation results in many decisions being made in a cost knowledge vacuum. The impact of these decisions is typically not known for at least a full financial period after production is well underway.”
Product cost estimates (especially early ones) are often based on historical information or very general heuristics (e.g. weight) and are too inaccurate and lack statistical confidence for effective decision making. Most cost estimating activity falls on a relatively small group of specialized people spending hours manually producing each estimate. Since the demand for costing feedback cannot always be met, the opportunity to experiment with the cost impact of design, manufacturing, planning, sourcing, etc. alternatives is limited and can not be readily cost optimized.
Most cost estimates are static and are not continually updated when new design, manufacturing, planning, or sourcing information becomes available as the product progresses through its design-to-production-to-delivery lifecycle. Out-of-date cost information can not be relied upon for downstream decision making. Costing practices are not always standardized across the enterprise. As more information is available, different costing practices and methods are used to re-cost items. Unfortunately this makes it difficult to leverage previous estimating work and build traceability in product cost accrual.
Typically cost estimates are not managed through a product’s development through production lifecycle. Multiple cost estimates from different sources are created as different times during the process. It becomes unclear which product cost estimate is current or valid. Today’s cost accounting methodologies begin with the financial statement for the prior closed financial period. The costs in that period are then allocated across various product lines and processes which are then further allocated for each individual product. These are by definition “rear view” mirror product costs.
aPriori’s Cost Management Software Platform enables manufacturers to better understand product cost decisions early and throughout the product lifecycle. aPriori’s Cost Management Platform empowers manufacturers to lower cost-of-goods sold (COGS), provides real-time visibility to “cost-critical” decision information, and builds critical cost knowledge to go on the business “offensive.” aPriori’s patent-protected cost management platform allows companies to assess, control, and reduce cost of goods sold by whole percentages. The aPriori Platform enables “Cost Knowledge Before it Matters.”
John Busa
aPriori
www.apriori.com
978-371-2006
jbusa@apriori.com
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