Product Costs: The Conflict between Engineering and Finance

By Thomas R. Cutler and Frank V. Azzolino

Observing the MCAD and PLM product sectors, there is a maturing and saturated CAD market and a PLM market that continues to miss the hopeful expectations of industry pundits. There have not been significant advances in MCAD since the late 1980’s. The industry changed with ‘feature based solid modeling’ and has now become a commodity since all of the providers are on an even playing field. The PLM market has underperformed for a variety of reasons; the theory of product lifecycle management is sound, realizing the vision has eluded many companies, taken far longer, cost much more than expected, and failed to deliver as promised.

A central rationale for the failure is the inherent disconnect between the goals and objectives of the product-centric engineering constituents and a company’s financially-based business objectives. The best example of this departmental conflict is the stark difference between the language of engineering and the language of business.

MCAD and PLM have historically focused on the engineering and design aspects of product delivery. The language of engineering as spoken by MCAD and PLM is based on physical attributes of the product and technological capabilities of the software solutions used. The result is a series of conversations about features, rounds, fillets, and chamfers.

The business operations focus is on financially related concerns such as margin, contribution, and profit. The language of the business is time and money. It is no secret that the profit motive is what drives critical company decisions. It is also no secret that the ability for the product to achieve the expected financial goals is driven by design and manufacturing decisions that occur very early in (and continually throughout) the product delivery process.

The holy grail of ‘collaboration’ is meaningless if the parties are not speaking a common language. The ‘lingua franca’ that translates the language of engineering into the language of business is ‘cost’, specifically, product cost.

Major PLM and MCAD providers long for acceptance and penetration outside of engineering departments at the same time the major ERP (enterprise resource planning) vendors strive to enter the engineering and product delivery arena.

In each of these application platforms, PLM and ERP, cost can be managed. On the ERP side, costs are always historical; these costs are available to be managed only after production. While it is more difficult to manage costs on the PLM side of the house, it is often potentially more valuable. The need for real- time, predictive costs are essential to allow design and manufacturing teams to avoid and eliminate costs early in the process (when critical cost-driving decisions are made.) Currently the array of MCAD, PLM, and ERP applications do not allow for the ability to generate this early cost knowledge.

Extending beyond the design engineering value, accurate product cost estimates offload the estimating burden from manufacturing engineers and planners who are already challenged with demanding production schedules, decreasing capital investment, and a dwindling experience base.

Additionally, predictive cost assessments offer procurement and sourcing professionals much needed “should cost” data to make better, more efficient sourcing decisions while negotiating from a fact-based position.

Finally, program and project management benefit from real-time visibility to product cost information continually throughout the product development and delivery process, avoiding the sudden shock of bad news late in the process.

Product cost knowledge is the common language spoken across the enterprise and is clearly focused on the business goals (as opposed to parochial product or feature oriented goals) that reduce costs, increase margins and contribution, drive profits and support growth.

aPriori: Providing a common language

Presently there is one company offering a cost management platform that directly addresses the need for real-time predictive cost assessment. aPriori Technologies, based in Concord, MA, is a technology leader providing innovative cost management solutions to the discrete manufacturing industry. 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 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. Bottom-line: aPriori helps companies measurably reduce costs of goods (COGS).

Author Profiles:

Thomas R. Cutler is the President & CEO of Fort Lauderdale, Florida-based TR Cutler, Inc., the largest manufacturing marketing firm worldwide – www.trcutlerinc.com. Cutler is the founder of the Manufacturing Media Consortium of twenty seven hundred journalists and editors writing about trends in manufacturing. Cutler is also the author of the Manufacturers’ Public Relations and Media Guide. Cutler is a frequently published author within the manufacturing sector with more than 300 feature articles authored annually; he can be contacted at trcutler@trcutlerinc.com.

Frank V. Azzolino is the President & Chief Executive Officer (CEO) of aPriori Technologies. He brings over two decades of experience in lifecycle management software and mechanical CAD to his role. Frank spent nearly 10 years at Parametric Technology Corporation (PTC), the leading provider of Product Lifecycle Management (PLM) software solutions to more than 38,000 companies worldwide. At PTC, Frank held several executive-level marketing and sales positions including VP of Sales of Eastern North America. Frank's final role at PTC was vice president Corporate Development and General Manager of Acquired Technologies, where he was responsible for mergers and acquisitions. As employee #27 at PTC, Frank was instrumental in growing the business from pre-revenue to over $650 million. Frank holds an MBA from Babson College and a BS in Structural Engineering from Tufts University; he can be contacted at frank@apriori.com.