Why Discrete Manufacturers Take a `Rear View` Look at Product Costs

According to Frank Azzolino, President & CEO of aPriori, theMassachusetts based Cost Management Platform company,  There are a number of reasonswhy discrete manufacturers have been forced to take a  rear view look at productcosts, such as evaluating and allocating product costs well after production wasunderway.Â

1. Cost information in most organizations is fragmented throughout the enterprise. Critical pieces of cost information are spread across independent silos within anorganization in different functions like engineering, planning, manufacturing,sourcing, finance, etc. This situation typically results in estimates that do notinclude all relevant information required to make accurate and predictive productcost assessments.

2. In most organizations product cost estimates are developed by specializedorganizations in cost engineering or VA/VE departments. In most cases, these costestimates are created separately and independently of the people making the design,manufacturing, and sourcing decisions. This separation results in many decisionsbeing made in a cost knowledge vacuum. The impact of these decisions is typicallynot known for at least a full financial period after production is well underway.

3. Product cost estimates (especially early ones) are often based on historicalinformation or very general heuristics (e.g. weight) and are too inaccurate and lackstatistical confidence for effective decision making.

4. Most cost estimating activity falls on a relatively small group of specializedpeople spending hours manually producing each estimate. Since the demand forcosting feedback cannot always be met, the opportunity to experiment with the costimpact of design, manufacturing, planning, sourcing, etc. alternatives is limitedand can not be readily cost optimized.

5. Most cost estimates are static and are not continually updated when new design,manufacturing, planning, or sourcing information becomes available as the productprogresses through its design-to-production-to-delive ry lifecycle. Out-of-date costinformation can not be relied upon for downstream decision making.

6. Costing practices are not always standardized across the enterprise. As moreinformation is available, different costing practices and methods are used tore-cost items. Unfortunately this makes it difficult to leverage previous estimatingwork and build traceability in product cost accrual.

7. Typically cost estimates are not managed through a productÂ's development throughproduction lifecycle. Multiple cost estimates from different sources are created asdifferent times during the process. It becomes unclear which product cost estimateis current or valid.

8. TodayÂ's cost accounting methodologies begin with the financial statement for theprior closed financial period. The costs in that period are then allocated acrossvarious product lines and processes which are then further allocated for eachindividual product. These are by definition  rear view mirror product costs.

aPrioriÂ's Cost Management Software Platform enables manufacturers to betterunderstand product cost decisions early and throughout the product lifecycle. aPrioriÂ's Cost Management Platform empowers manufacturers to lower cost-of-goodssold (COGS), provides real-time visibility to  cost-critical decision information,and builds critical cost knowledge to go on the business  offensive. aPrioriÂ'spatent-protected cost management platform allows companies to assess, control, andreduce cost of goods sold by whole percentages. The aPriori Platform enables  CostKnowledge Before it Matters.Â

Source: Express-Press-Release.com

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