PLM, Product Cost and Bridge to Nowhere?

November 5, 2012

Product cost. Talk to any manufacturing company in the world and they will tell you that cost is one of the most important factors for them. Fundamentally, you need to produce goods to enable profitability of your enterprise. Sounds simple and straightforward. It looks like one of the first pieces of software any company should buy is "product cost software". Actually, in the reality, things look different. Many companies are talking about "cost-management" solutions, but it is not so easy to build one. Back last year, I’ve been posting about the product cost – CAD, PLM and Product Cost. I’ve been reading an article by Jim Brown, my blogging and twitting friend, about product costing – Product Cost Management as a link between enterprise systems. Navigate to the following link to read more. Jim is providing very interesting insight on cost management following the acquisition of Perfect Costing Solution by Siemens PLM. Jim provides his definition of cost:

Product Cost Management– An agreed, coherent, and publicized system of culture/goals, processes, people, and tools following the product lifecycle, that ensures the product meets its profit (or cost) target on the day that it launches to the customer.

Jim defines "product cost solutions" as financial bridges. Here is an interesting war-map between enterprise software vendors (domains) from Jim’s blog. Take a look below. Here is an important passage in my view:

Who will occupy the physical to financial bridges? Siemens has made the first move to acquire one of the bridges (Tsetinis). My educated guess is that a PLM company will be the next acquirer as well. However, there are eight or nine of the Product Cost Management bridges of varying width that link to the different stages of the engineering product life cycle. Given this variety, it is not unthinkable that one or more of the scenarios outlined above will occur simultaneously.

Jim’s war-map made me think about 3 main factors that in my view, prevents enterprise, engineering and manufacturing software vendors to build a good cost management solution. Here they are -

1. Information about cost is located in multiple systems. It is not easy to software companies in the enterprise world to give up on data ownership. So, despite multiple discussions and conversations about standards, I found still a lot of protectiveness to share data openly.

2. Design and engineering user experience is not cost-driven. Design and engineering activities provide a significant influence on cost. 60-70% of product cost is defined during the early design time. However, engineers and designers are not dollar-driven. Cost is more a "check-mark" for them and not a natural way to design and build products.

3. There are lots of cost-influence factors not captured by any system. Last, but not least. The information about what influence cost is very often not captured by any system and located in people’s head. The fact somebody (or few people) know something that can significantly impact cost, can make software useless and effort to create this software a joke.

What is my conclusion? It is hard to find a person who will tell you "cost is not important". However, nobody wants to take a responsibility for cost. In the world of enterprise software, vendors are protecting their islands and fortresses. As we know, to build bridges is not the best strategy to protect yourself. So, why PLM, ERP, SCM and any other TLAs in the enterprise software world will be interested to build a good bridge? At the same time, product cost is huge and very important issue. The pressure from customers will force PLM and other enterprise software vendors to solve a problem and build solutions. One of the possibilities to improve cost management is to make software more open to facilitate data exchange and data access. Just my thoughts…

Best, Oleg

Cost War Map picture courtesy of Tech-Clarity blog.


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