Cost accounting may be unpopular for engineers, but already in product development, it contributes to achieving the company's profit and cost targets. Therefore, product design can no longer be about functionality, feasibility, quality, and meeting deadlines alone. The development goal includes considering product costs and keeping total costs as low as possible.
At any point in product development, achieving target costs and margins is challenging. In this context, development teams are aware that late consideration of the expenses in product planning can lead to time-consuming and cost-intensive adjustments and that changes can only be made to a limited extent. There is often a lack of opportunities to examine the cost and product structure simultaneously. The goal must be to control product costs early in the product development.
Product costing against target costs repeatedly requires data and information from development, project and program management, production, business development, and control. Since each division usually works with its systems, (too) much time is spent on data consolidation.
The number of tools used is driven by the stakeholders, who each view the project and their requirements for working and reporting capabilities. As a result, many files, applications, and information are stored in individual departments, different folder structures, or e-mails.
Manual data consolidation from previous project documentation, current and latest project sketch data, CAD data (from 2D, 3D, JT files or drawings), and purchasing info records across multiple locations require high resources. Often, information relevant to costing is not considered, or outdated values are included in calculating product costs.
Suppose the costing error is not recognized, and profit margins and loss risks in product costing are calculated with outdated values. In that case, the risk of being responsible for an unprofitable project increases throughout the project.
A lack of a standard cost view in the project and missing mechanisms to integrate current production and cost data from the PLM, ERP, or other systems can misdirect product development. The new price point must be raised in the middle or upper market segment for the product initially intended in the low-price market segment.
Many companies have excellent communication systems for collaborative work and mapping the technical perspective of a product for all functions involved. The financial aspect - i.e., the calculation of product costs and the simultaneous consideration of the market side - is segmented in different tools and spreadsheets and the common view is missing.
But what requirements must be met to control costs efficiently?
Trustworthiness is achieved when the sources from which the data is fed are known. For example, a network of company-owned and up-to-date data is used by consistently linking systems and databases that are already deployed. The project team can make informed product decisions based on reliable data.
At a very early stage, it is essential to clarify the central issues of the project and to be able to outline the effects of decisions to the management transparently.
What happens when there is a change of material?
What happens when the production method is changed?
What happens when volumes or prices are adjusted?
Our solution approach starts directly with the control of product costs. Enterprise Product Costing helps industrial companies to consistently analyze their profit margin and increase it either by reducing product costs or by increasing sales.
The availability of a single source of costing, which is also an application for efficient costing during development, simplifies coordination processes in product planning and product support. With a development-accompanying control of the product and cost structure, the profit margin of products and projects is focused on at any time.
Webinar Recording: Target costs under control with practical design to cost
Learn how to overcome challenges in target costing.