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During my tenure in the Automotive Business Unit at SAP spanning over 15 years I have been often asked by many of our customers and prospects about SAP’s ability to cost products over its entire lifecycle in an easy and efficient manner.  Next time a customer has this query there is some good news I can deliver, as SAP is currently developing a solution to fully address this exact need.  SAP Product Lifecycle Costing is the future SAP solution that is being co-innovated in close cooperation with multiple automotive and discrete manufacturing customers of SAP.

So what exactly is “SAP Product Lifecycle Costing” and what does it mean to our customers?

The definition states SAP Product Lifecycle Costing is a solution to calculate costs and other dimensions for new products or quotations in an early stage of the product lifecycle, to quickly identify cost drivers along the lifecycle and to easily simulate and compare alternatives.

Let’s try to parse this mouthful of a definition.  Automotive companies today are highly focused on providing innovative, customer-driven products at the most competitive prices. Being able to quickly assess costs is not only a critical success factor; it’s an essential differentiator. So what does it entail to achieve such an objective?

The costing process is a collective endeavor where different functional groups within a company input their aspect of costing a product and simulate different scenarios for making it profitable. There is a strong need to be able to do this from the very beginning
where a part number might not yet exist and details are nothing more than a plan in the engineer’s mind.  The cost factors need to be calculated for such a skeletal BOM while it is still taking shape and then must be continually adjusted and enhanced as the product matures all the way to its end of lifecycle.

At an early stage of product development or customer quotations, cost saving potentials can easily be realized.  Risk along the
lifecycle can be identified and mitigated more effectively at the nascent stages of making a Product.  The multiple sources of cost planning have to be accommodated in a single platform to propagate a ‘single version of costing truth’ within the company.  The master data related to the product structure typically comes from the CAD/PLM system(s), the logistics valuation of the product including the routings and the line design comes from the manufacturing planners, the activity rates and the overhead costs have to be provided by the controller and finally the purchasing group incorporates the purchase contracts among other factors.  All these inputs including external input(s) from a partner/supplier need to be incorporated in order to cost a product accurately and adjust to the desired profitability margins.  This is the method of bottom up and top down costing analysis that is typically done in the automotive world today albeit in disparate systems.  With ‘SAP Product Lifecycle Costing’ SAP is bringing all this under one roof for
more visibility in the process of maturity of the product.

Which corporation wouldn’t want to try out a myriad of options in their product BOM during development and compare real time the alternative(s) that are viable and fall within the established target costs?  To achieve this would involve trying out multiple permutations/combinations for product structure, routings and other factors and simulating the best possible
end result.  However, to be able to process such ‘what-if’ simulations on huge quantities of data and cost algorithms in real time the conventional databases would prove inadequate.  SAP Product Lifecycle Costing is designed to utilize the design and horsepower of SAP’s HANA database to enable real time simulations.  This setup would make it possible for automotive companies to parse and run myriad of cost simulations and get the result in a very fast and time efficient manner thus weeding out the unprofitable scenarios.

The business processes that need to be supported during ‘quotation lifecycle’ of a product are also planned to be part of the solution offering.  The cost estimates that are managed within this platform could be saved/base lined at various lifecycle gates of the product to keep track of how the product changed in terms of costs and what engineering changes prompted those changes.  Reduction of ‘quote cycle time’ would be primarily achieved as this platform would contain all the necessary data, links and templates to cost a product.

After a survey of the current tool of choice for our customers in relation to the costing business process, it was decided that the user interface would have to be ‘Excel like’.  This user interface would be very intuitive to the end users and would cause very little disruption in how they are used to working to accomplish this task. Role based individualized, simple and secure access to product cost structure versions and related collaborative tasks are also being incorporated to accommodate various responsibilities within the organization.

The anticipatory enthusiasm that I share for the product is based on the fact that it is being co-innovated product with a number of customers providing their input and being part of the journey to bring SAP Product Lifecycle Costing to reality.  The end result is a solution that is very clearly aligned to the industry needs and meets most of the industries business requirements.

Register today and learn more about SAP Product Lifecycle Costing and other technology trends influencing product management at the upcoming Automotive News webinar on Sept. 21st. Also visit us at our premier annual Best Practices for Automotive event Oct. 17 – 19th in Detroit and see the latest innovations including PLC and how it can benefit your organization.

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  1. Tom Sohal

    Hi Mukund

    An interesting and easy to read write up. 

    Having worked as a subject matter expert in numerous automotive companies across the world the topic is very dear to my heart.  I’ve seen the good and the bad and have a strong opinion on what should happen to ensure business success. The proof is always in dealing with the vagaries of the BOM build-up process.  Taking the “co-innovation” approach may possibly have led to incorporating too many compromises.   What’s often needed is leadership with an authoritative stance on what’s right based upon deep experience and intuition rather than accommodating compromises. I’ll wait to see whether there are true advantages over “best of breed”.

    Best regards,

    Tom S.

    (0) 

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