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Author's profile photo Sean Laughlin

Driving Product Profitability in the Cloud: Accelerating Time to Market with Higher Cost Confidence

In today’s marketplace original equipment manufacturers (OEMs) are being challenged to deliver innovative products (automobiles, machinery, etc.) to their customers at a reasonable price faster than ever all while protecting their margins.  The pressure to deliver the most cost optimal product puts pressure on the entire supply chain as each tier is also looking to optimize cost to protect their own profitability.  These pressures are amplified even further throughout the entire supply chain as there are still disruptions being felt from the recent pandemic.  Companies are seeking a solution that not only allows them to improve future product profitability but also to gain efficiency in their design processes and to support their Industry 4.0 initiatives.

Accurate and Timely Target Costing is Paramount

The challenge is rooted in the manual processes and spreadsheets used in the process.  These methods no longer suffice because they impede rapid innovation and responsiveness to customer demand.  The data, particularly in the early stages of the cost calculation process, is often limited or scattered.  The details are either unknown or completely new as in the case of developing new products to meet new customer requirements – a common challenge in both New Product Introductions (NPI) or custom Engineering to Order (ETO) projects.

What is needed is a standardized approach to product lifecycle costing – one that emphasizes transparency, access to trusted data, information sharing, and easy collaboration with supply chain partners. The goal is to secure future profitability as early as possible.  SAP Product Lifecyle Costing is poised to address these challenges and the specific needs of discrete manufacturers.

Flexibly Calculate Cost at All Stages of Development

A key capability of SAP Product Lifecycle Costing is the ability to access to current and historical cost information through integration with ERP and PLM systems.  The ability to bring data – such as bills of materials and routing information – from these systems into early calculations, allows you to start your analysis from a solid foundation based on previous experience.  Using customizable templates to help kick-off the cost calculation process, quickly enables you to move away from spreadsheets with unreliable data.  Entire teams gain confidence from working from a shared source of truth that eliminates confusion and facilitates faster cost estimates.

The flexible, hierarchical costing structures within the solution help to organize product cost information in a way that is readily understandable and its comprehensive roll-up capabilities, calculation versioning, and ability to distribute one-time investments across the planned life of a product – give you a true understanding of lifecycle cost.

Supporting Industry 4.0 Initiatives

The essential initiative of Industry 4.0 is to make manufacturing and all related processes faster and more efficient by leveraging innovations, SAP Product Lifecycle supports this initiative through the use of in-memory database technology which allows for the highly efficient handling of large and complex calculation structures often seen in discrete manufacturers.

SAP Product Lifecycle Costing also supports various strategic, organizational and process level goals as well.

  • Shorter time to market for a fast reaction to customer demands: The solution provides a smoother start into cost calculation by providing the history of former calculations. It provides a centralized calculation hub across engineering and manufacturing departments – shortening the time to get a complete view into the overall cost situation.
  • Automation of routine tasks: Cost engineers can fulfill routine tasks like comparing calculation variants, or calculation baselines much faster.  The solution enables a best practice calculation process through standardized costing sheets and processes.  Cost engineers can evaluate more alternative designs and increase their work quality – leading to a more diverse view on product and process engineering.
  • Optimized Production Processes:  Cost calculations of new manufacturing processes is one of the biggest challenges for the cost engineer.  Many parameters like location, cost of automation, human work, transportation, energy, government regulations lead to a huge number of cost variants which must be calculated in parallel.  The solution provides the ability to reuse and a fast calculation engine – critical items in the development of cost-efficient manufacturing processes.

New Innovations for Industry 4.0  

SAP continues to introduce capabilities within SAP Product Lifecycle Costing addressing needs of discrete manufacturers.  Let’s examine new developments and discuss their relevance.

  • New language support: Sales based costing scenarios require the ability to support end users desire to use their native language while using the application. With this need in mind, SAP Product Lifecycle Costing has added three new languages (Spanish, French and Italian)
  • Side-by-side Comparison of Calculation Versions: Customers require this capability in a costing tool when comparing different cost simulations to understand the deltas realized in trying to arrive at the most optimal product cost.
  • Flexible Item Categories: Enables calculation of new cost types which are especially essential with new business models (e.g., sustainability initiatives).  The increased flexibility delivered enhances the usability of the solution in modeling customer specific costing scenarios.  Customers can now achieve more granular detail in their costing structures and simulations.
  • Price Determination based on Vendors: A must-have feature for all automotive OEMs, suppliers and others who need the ability to simulate different scenarios (i.e., dual sourcing). You will be able easily simulate and visualize the impact of vendor changes and different vendor quotations and costs on the total product cost.
  • Scaled Prices: Another key capability required by the industry which is needed in order to manage purchasing complexities. SAP PLC will have the ability to manage price based upon a quantity ordered across the application or within a specific calculation version.
  • Integration to SAP Integrated Business Planning for sales and operations planning: Becoming more embedded with the supply chain processes in organizations, SAP Product Lifecycle Costing will be able to consider planned future sales volumes for lifecycle costing coming from sales and operations planning activities.  SAP Product Lifecycle Costing will then push product costs back to the planning teams to support business decisions relevant for overall supply chain.  The integration will drive tighter synergies within organizations and facilitate faster time to market with more accurate product costs based on projected sales volumes.

Accelerate Time to Market (and Profit)

By leveraging SAP Product Lifecycle Costing and the latest industry focused developments, discrete manufacturers can gain greater understanding of the cost dynamics during the product development and quotation support processes.  The greater cost confidence gained during the early product lifecycle and ability to simulate and compare alternative scenarios can dramatically improve margins and time to market with their products and services.

To learn more about how you can best leverage SAP Product Lifecycle Costing within your organization, please click here.


Special thanks also to contributors: Katarzyna Maciak and Uwe Skorzinski, SAP

Please Note:

All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates, and they should not be relied upon in making purchasing decisions.

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