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Overcoming Product Cost Management Blind Spots

Posted By Jeff Moad, May 08, 2013 at 6:21 PM, in Category: The Adaptive Organization

Why do many organizations do such a poor job of product cost management?

According to a recent post  by PCM consultancy Hiller Associates, much of the reason lies with the siloed nature of most functionally-organized companies. Most functions such as engineering, finance, and manufacturing, the post argues, come to product cost management shackled by significant blind spots and, therefore, aren’t able to engage in PCM in a strategic way that adds value.

At the risk of over generalizing, the post argues that, at most companies the engineering function values product attributes such as performance, quality, and time-to-market much more highly than product cost. So engineering tends to focus on PCM less than it could during the product development phase.

The finance function, on the other hand, brings a backward-looking, allocation –of-cost viewpoint to the subject rather than taking the predictive approach that is necessary for effective product cost management.

Meanwhile, the manufacturing function in many companies has become so depleted by outsourcing that “the manufacturing guys are often absent from the PCM ballgame.” Hiller states. “Their concern (is) about how they’re going to assemble the parts together for the final product, not how to make the parts.”

The result is that PCM doesn’t fit clearly in any functional organization, and many organizations do a poor job of product cost management.

What’s your experience? Have you been able to overcome these functional blind spots around PCM and, if so, how?

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit

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Posted on
Thanks for your question. It would make sense to make the manufacturing function accountable for PCM. Manufacturing leaders have hands-on visibility into the cost-implications of design and materials decisions and could naturally take on more of a life-cycle view or product and process cost. But, of course, manufacturing would need to be afforded the resources to do this. And the organization would need to be aligned properly to support this.

What are your thoughts on this question?
Posted on
I believe you have pointed out the problem rather well. With no one being held accountable for product cost it is little wonder that a poor job of managing that cost is the result. Until accountability is assigned and measurements in place to monitor performance, this will continue. So I will answer your question with a question. Who should be accountable for PCM and why?
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