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The FACTON whitepapers cover topics in relation to product costing in the manufacturing industry. The whitepapers provide a wealth of information and practical hints for companies that want to be well prepared for the future, and need to respond to current trends.
Medical engineering and manufacturing face an unprecedented set of disruptions today, leading to new business pressures on companies in this market. From rapid growth to new regulations in a global marketplace, companies are struggling to keep pace. One area that is especially impacted is product costing/estimating, with a significant challenge on profitability. Enterprise Product Costing (EPC) is a new class of technology that has emerged to assist companies in selling more profitable products.
Enterprise Product Costing: The Key to Cost-based Enterprise Management
Enterprise Product Costing (EPC) is a management concept that combines departmental approaches to cost management. When used holistically, EPC effectively enhances the transparency of the cost situation in the enterprise, facilitates crossdepartmental and cross-site collaboration, prevents errors in information sharing (e. g. of cost data) and increases efficiency in the generation of results – for decision papers and proposals, or for preparing orders. EPC software forms the operational core of this concept and simplifies its introduction.
This white paper examines the basics for the introduction of EPC and shows practical steps for implementation.
Cost engineering in purchasing – the method you need to secure profitability
Approaches, implementation and added value
Proactive, targeted cost management is becoming increasingly important because businesses need to have a handle on their costs to successfully compete in the global market and achieve profitable growth. It is essential for all business divisions and locations to perform costing based on the same data and methods in order to achieve transparent, comparable product costs.
Enterprise Product Costing (EPC) is the management method that takes advantage of this form of cost management. It considers the value each business division contributes to effective product management.
For example, purchasing plays an important role in effective design due to the increased amount of purchased components in product manufacturing. Production changes and extensions require purchasing agents to quickly and flexibly compare and adjust prices. Today’s suppliers are also involved in preliminary planning of production workflows in order to represent cost factors long before production begins.
Purchasing agents can take advantage of concepts developed in different departments (e.g. development) to satisfy these design requirements. To customize these concepts to meet the unique requirements of the purchasing department, there is a set of methods that puts procurement in a position to optimally respond to these new tasks, to make an essential contribution to cost optimization and to establish itself within the enterprise-wide cost management process with an eye towards EPC.
In practical applications, the EPC approach is best implemented with the help of a corresponding IT system. These EPC systems define standardized processes, calculation methods and calculation standards along with a calculation logic to promote a uniform understanding of costs and ensure that it is possible to compare results.
Results-oriented decision-making – Transparent Business Case, a Tool for Effective Enterprise Management
Every day in manufacturing companies, decisions must be made that can lay the foundations for success or failure. However, managers can only make optimum decisions when the resulting effects are made transparent and alternatives are evaluated in advance. Thus, optimal decision preparation is a crucial factor for success within the context of results-oriented enterprise management. Clear, concise business cases can facilitate this process. They should be seen as the result of the overall cost and profitability analysis process. Unfortunately, many industrial enterprises have significant deficiencies when it comes to preparing business cases. One of the main problems: Managers only focus their attention on the completed business case – they frequently do not have an overview of how it was prepared. This is why they are unaware of the challenges and problems surrounding business case preparation: The highly complex methods, the number of departments involved, the many assumptions that need to be made, etc. often result in longer processing times and inconsistent results.
IT systems for Enterprise Product Costing (EPC) offer support here. They are designed to quickly consolidate and clearly present even large quantities of data, make schematic comparisons of calculations and shed valuable light on cost optimization potential. They also help ensure uniform data sources and standardized calculation logic. This makes preparing business cases significantly faster, more efficient and complete.
Manufacturing companies are compelled to develop and bring new, innovative products to market faster and faster in volatile markets and under rising cost pressure. Keeping and sharpening a company’s competitive edge requires optimizing costs right from the inception phase: Benchmarking helps companies evaluate their own products and services early on and simulate scenarios well ahead of time. Comparing average values from the same industry, other sectors or with internal best practices reveals potential for optimization.
Companies that want to look at their costs in a proactive and holistic way should use the benchmarking approach in different company divisions and processes. For instance, using benchmark data it is possible to simulate and compare technical solutions at an early stage of development. Purchasing agents use benchmarking to prepare target price calculations for meetings with their suppliers, for example. Benchmark data also provides a basis for location comparisons, target-setting as part of target costing, etc.
The prerequisite for the success of any benchmarking, however, is a database containing valid benchmark data. Cost management systems are a good resource for this as they already contain reliable benchmark data that is ready for immediate use. Especially EPC systems, which ideally integrate current, independent benchmark data for purchasing, development, production, sales, controlling and management. The advantage: The benchmarking process is optimally incorporated into proactive cost management.
Offer Calculation – Challenges and Success Factors
In preparing an efficient offer calculation today lays the cornerstone for tomorrow’s success: It plays a key role in determining whether a business wins projects in global competition and whether they remain profitable once they have been awarded. This is why enterprises must recognize that offer calculations are a critical success factor. It is management’s task to set up processes, methods and tools in an optimal way: This includes introducing both enterprise-wide standards and a central costing tool that establishes these standards and automates data maintenance.
Enterprise Product Costing (EPC) systems keep all of the relevant data available in a central location and document how offers develop over time. Moreover, they enable businesses to automatically complete external cost breakdown forms and create detailed reports, analyses and simulations for management. This allows the interdisciplinary team involved in the offer process to quickly prepare accurate and clear offers – all without taking their focus off of cost optimization.
The path to a profit-oriented enterprise: Active cost management with Enterprise Product Costing
More and more companies are beginning to realize that cost management needs to be a key part of their business strategy. However, in practice enterprises rarely implement the processes and IT structures required to accurately identify and optimize costs. This results in imprecise calculations – and important decisions are made while flying blind. So what is needed is active cost management based on the established “Enterprise Product Costing” (EPC) method: An integrated EPC system not only standardizes calculations throughout the enterprise, it also helps users perform costing across different locations and departments. Every department works on the basis of uniform standards. Development, product and manufacturing costs are fully transparent in every phase of the product life cycle. Businesses discover ways to cut costs early on in the process.