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Author's profile photo Manivel Kulanthaivel

SAP Product Lifecycle Costing for Discrete Manufacturing Companies

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.

Discrete Industry 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 Discrete manufacturing world today. 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 manufacturing 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.

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