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Challenges such as the volatile global economy, rising competitive pressure, technical innovations, new demands for product features and quality along with changes in consumer behavior are forcing businesses to constantly adapt to evolving market conditions. For manufacturing companies this not only means continuously advancing and optimizing their products, but also their own processes and methods.
Proactive cost management that accounts for product costs incurred as early as the initial product idea offers tremendous optimization potential. Often product cost management or cost management is subsumed under and steered by product and project controlling even though other areas of the company directly influence the cost development of a product. This is why it makes more sense to proactively involve all areas of the company that have a major impact on costs in the costing process.
The prerequisite for proactive, interdisciplinary costing that starts with development and continues throughout the entire lifecycle is a comprehensive management method such as Enterprise Product Costing (EPC). This creates uniform, cross-functional and standardized processes enterprise wide to ensure that costing is accurate, transparent and complete.
Product costing cannot be viewed as an isolated discipline. Rather, every area of the company that influences product costs should be involved in the costing process.
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The challenge of interdisciplinary cost management lies in bringing all of the different teams together: Every department brings its own understanding of costs and targets to the table. This also means that every department defines its own priorities with respect to cost calculation. Misunderstandings or inaccurate calculations can arise if cost management is interpreted in different ways, is assigned different priorities or is implemented using different methods.
The result: Incorrect calculations create an inaccurate view of the company's financial situation and, in the worst-case scenario, lead to decisions that prove disastrous to the fate of the company.
In practical applications an additional vulnerability also generally arises: Every department uses its own IT tools and systems with its own data. If employees then search through their own databases this can result in incomplete or incorrect manual entries. Moreover, there is no guarantee that the data is current. System discontinuities inevitably lead to high error rates and an inability to compare data.
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Enterprise Product Costing has been established itself as a comprehensive cost management approach in recent years that eliminates the problems outlined here. EPC is a method of standardized, enterprise-wide product costing independent of location and department. The aim is to transparently present costs early on and throughout every phase of the product lifecycle to identify and eliminate cost drivers. Standardized processes and methods promote a consistent, enterprise-wide understanding of costs. This results in comparable cost calculations that follow a common logic. Individual project costs are actively monitored throughout the entire lifecycle, i.e. calculated, simulated, analyzed and ultimately optimized.
The three pillars on which the EPC approach rests are easy to understand at first glance. Nevertheless, very few companies follow these basic principles:
As a general rule, and especially in today's uncertain economic times, achieving full transparency over development, manufacturing and product costs is existential for business success. After all, the only way to fully leverage cost reduction is to understand all of the options available to you.
In practical applications, the EPC approach is implemented with the help of a corresponding IT system:
EPS systems unify all of the enterprise's cost information in a centralized database. This ensures that every employee works with the same data.
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This includes information from Enterprise Resource Planning (ERP), Product Lifetime Management (PLM), Product Data Management (PDM), Computer-Aided Design, Excel and external benchmark data. Cost data is collected, edited, processed and clearly presented in the application. This gives users access to the valid, standardized and comparable basis of data they need in order to make solid product and investment decisions. EPC systems also 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.
When used holistically, EPC effectively enhances the transparency of the cost situation in the entire enterprise.
Predictive costing with artificial intelligence will simplify decision-making processes for rapid cost-based pricing.
An integrated EPC system standardizes calculations and helps users perform costing across all departments.
Companies that win the costing game have a highly developed costing approach for delivering the necessary calculations and data.