Costs are incurred at every phase of a product’s lifecycle — right from its initial design to its final disposal. Managing the lifecycle of a product hence requires accurate information and control over costs as well as the insights necessary to make business decisions. However, with only cost estimates being available, and planned costs often being out of sync with the actual bill of materials, this becomes difficult. It is also a challenge to estimate pre-launch costs for new products, and maintain quality without the necessary information or a method to streamline costs along the lifecycle. In these cases, costs must be estimated without crucial information such as the prices of materials, fluctuating currency rates, and activity rates.
Thus, lifecycle costing has a strategic importance and approaching it with greater accuracy enhances the product lifecycle management (PLM) strategy. Technologies that integrate cost information right from an early stage of the product lifecycle with market requirements can be game changers in the pursuit of profitability.
Time to move beyond spreadsheets and know more
The ability to integrate cost information is severely limited with businesses having to put together data from disparate sources — structured data from enterprise software solutions like SAP ERP as well as unstructured data from various Microsoft Excel spreadsheets. This makes it complex and laborious to prepare accurate calculations. Understanding costs and assessing calculations becomes even more challenging without being able to track the flow of data or capture calculation history. With critical business decisions at stake, it is now time for organisations to move beyond spreadsheets and acquire a better understanding of various cost elements. Manufacturers need both greater visibility of potential costs throughout the lifecycle and improved transparency. For example, if an organisation was able to forecast the cost of its product launch accurately, it could not only ensure a shorter quotation cycle, improve the time to market and have a higher quote-win rate, but also control cost overruns and mitigate associated risks. Moreover, when it comes to series production, better cost control can help in forecasting margins with greater accuracy and enable early interventions when costs fluctuate.
Planning through the lens of “cost”
The idea behind lifecycle costing is to enable organisations to have a cost-centred view of products. Technology solutions that can streamline costs across the enterprise can track evolving costing calculations, forecast costs and simulate them over the lifetime of a product. They can also incorporate cost management strategies early in the product design process to ensure meeting target costs. Such comprehensive costing management enables organisations to have better control over profitability, transparency and help avoid cost overruns and risks. This aligns with an organisation’s PLM goal of reducing time-to-market and product lifecycle costs.
SAP’s Product Lifecycle Costing (PLC) solution is an example of a technology solution that has all these capabilities. The solution makes it possible to calculate costs for new products or quotations early in the product lifecycle. Moreover, it creates detailed cost estimates to identify savings even before the design starts and swiftly identifies cost drivers along the entire lifecycle. Powered by SAP HANA, it works with extensive amounts of data in real-time to deliver accurate and timely cost calculations. It overcomes the issues of system heterogeneity and integrates with the SAP ERP application. The solution also makes it possible for an organisation to simulate alternatives and enables comparisons. With an analytics application at the frontend and an ERP at the backend, it can do everything from lifetime calculations and target costing, to ‘what-if’ simulation and project analysis.
At EXA, we recognise the strategic importance of having a PLM strategy and believe that businesses can optimise profits by using cutting-edge technology solutions for lifecycle costing. In this new trend of organisations adopting product lifecycle costing, we support companies in developing a roadmap for product costing and controlling. We work closely with the SAP Standard Development team to help build a sustainable IT solution landscape for our customers. Moreover, we have leveraged our functional and technical expertise and developed add-in tools and extensions that enhance the SAP Product Lifecycle standard solution with further useful functionalities.
Several companies, including global automotive OEMs, already enjoy the benefits of using such technology solutions. I believe that the adoption of lifecycle costing will continue to grow as it brings a welcome change to cost planning and profit forecasting. Today, companies are emphasising innovation and looking to develop customer-driven products at competitive prices. These organisations will discover that it is easier to drive innovation when businesses can assess current and future costs — quickly and reliably. This will emerge as a crucial differentiator in an increasingly competitive global market landscape.