New Product Introduction

Don't Gamble on Your Product Costs

July 18, 2018

Hope is not a good strategy when it comes to product costing. Propel’s costing capability makes it easy and headache-free for companies to get away from the folders of spreadsheets and into a purpose-built solution that provides a wide range of significant advantages.

It's a tale as old as time. Even when they were designing the wheel and deciding whether it should be made of wood or stone, "engineers" of that era were focusing on other issues.

How will they make it? What will it take? How much time do they need to invest in making wheels for accessible for everyone in our village? What are the cost of the materials needed to make the wheel?

Wheel designers wanted rustic and farmhouse before Pinterest even existed. while the "engineers" and "bean counters" focused more on function and ultimately, the cost and time it would take to make the wheel. 

wheels

Today you could argue the tale has been modernized a bit. Even in 2018, the fuzzy front end of product design creates all kinds of interesting challenges for engineers. The lack of information can prohibit us from confidently making the best design and business decisions about our product. It goes without saying but I'll say it anyways, one of the important areas that hardware engineers need to analyze when launching new products is sourcing and manufacturing cost.

Why does costing matter?

Costing matters because businesses need to ensure they aren't depleting the farm funds in order to make the eggs. In order to ensure maximum profit you need to know what it takes, rather what it costs to make the product you're selling. Properly budgeting and managing your costing is key to making a profit for any organization, regardless of size.

Cost roll-up calculations

In order to properly cost your products you need to perform cost roll-up calculations. These are performed by adding up all the component costs along with other variable costs like manufacturing and shipping costs and whichever costs you deem important to your business.

PLM Cost Roll-Up Calculations

One of the important areas that hardware engineers need to analyze when launching new products is sourcing and manufacturing costs.

Let's say you're manufacturing journals. Some component costs might include the cost of the paper, the ink to print the lines on the paper, the cost of the binding and glue, the cover material cost (leather, rubber, hard plastic, etc) and probably the cover art license if you're planning on making it standout from the crowd. 

journals

The earlier you can get an accurate read on product cost, the easier it is to solve any cost-related issues that impact your ability to meet profit margin requirements. If you're getting ready to begin a new line of journals and you don't factor in all components of costing you're going to be on the wrong side of a phone call with the stakeholders.

 

BOM costing

Missing Data in BoM Costing

One of the issues with BoM costing early on was the incomplete data. When you use a system that already has historical component and manufacturing cost information it can help fill in the data gaps so that you can get a good estimate of total cost early on in the product design phase.

Imagine a system that already has the cost of your components built into the software. Now that's something worth seeing.

It’s key that you analyze product cost based on different demand and part sourcing scenarios. For example, how much will your product cost to manufacture once demand picks up and you can commit to your JDM to a larger order? How much will you save if approve a new cheaper component? What-if scenario analysis is instrumental in making optimal sourcing and manufacturing decisions. Save yourself time, money and trips to the pharmacy for extra strength Tylenol.

Post product launch

Sorry to say, even after your product is launched, your costing analysis work isn’t finished.

In order to stay competitive and increase profit margin, you need to implement cost reduction programs so that you can increase the profitability of your product even after it's in the market.

Tracking and measuring how the cost of manufacturing your product has changed over time allows you to measure the effectiveness of your cost reduction programs. That means you could potentially make a higher profit when you optimize your costing.

Spreadsheets? No thanks.

To no one's surprise, cost analysis is often performed using spreadsheets. Sure, spreadsheets are convenient when formulating a new process, but they slowly become a nightmare when the process needs to scale beyond a single individual and when the data you are analyzing is complex like a multi-level bill of material.

Propel to the Rescue

Using Propel’s costing capability makes it easy and headache-free for companies to get away from the folders of spreadsheets and into a purpose-built solution that provides a number of significant advantages including but definitely not limited to:

  • Embedded Reporting, so that you always know how component cost changes affect all your products and how your BOM costing has changed over time
  • Historical component cost data from different distributors and joint development manufacturers giving you information when negotiating new agreements with you JDMs
  • Supplier Portal that allows supply-chain partners into the process by uploading updated component cost data through a supplier portal while ensuring sensitive cost data remains protected.
  • Scenario Analytics enabling you to analyze manufacturing and component costs under different demand and sourcing scenarios and to allocate cost appropriate when multi-sourced
  • Data Cleansing tools - Costing data from suppliers often comes with many errors. Propel has a powerful data import capability, making it easy to take multi-level BOM data from your JDM, review and cleanse the data, and analyze your product manufacturing costs. You can also provide your supply-chain partner's access to Propel through a Supplier Portal so they are responsible for updating their cost information in your system.

With Propel you can:

  • Measure cost reduction programs
  • Calculate total product cost with multi-level BOM roll-ups
  • Predict future product cost based on demand
  • Allocate cost across multiple approved manufacturer parts
  • Analyze cost under different "what-if" scenario
  • Use custom attributes, fields, and formulas
  • Review historical costs based on past product revisions and former negotiated costs
  • Import multi-level BOMs with manufacturer parts cost data
  • Grant access to JDMs and other supply-chain partners to a supplier portal to update data
  • Restrict access to sensitive cost data
macbook-costing

Allow us to show you first-hand how costing works in Propel's product lifecycle management platform. Reach out to one of our costing aficionados or watch a quick PLM demo for a brief overview of PLM on Propel. 

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Author

Allyssa Eclarin

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