Three Steps to Cost Control: Addressing the Root Cause of Unexpected Product Costs

By Eric Larkin
Chief Technology
Officer and Co-Founder
Arena Solutions
Foster City, CA

We often hear a common story from small and mid-size manufacturers. The VP of sales nails a really big order that will secure the company’s future — if the company can deliver. The challenge ignites chaos, and it’s a frenzy of frantic phone calls and sleepless nights to get the product built. The company fulfills the order, and everything is great in the end. Right?

Usually not. When the final numbers come through, the big deal often does not mean big profits. No bonuses because cost overruns have eaten into the margins, and everyone tries to place blame.

It’s a virtually impossible task to manage thousands of parts in a multimegabyte, multicolor, and multi-worksheet spreadsheet-based bill of materials (BOM). And when those spreadsheets are e-mailed, suddenly multiple different “official” versions result. The steps that then get taken to make sure the factory builds the right revision can be downright embarrassing.

The problem, so common at companies racing to get products to market, is that they rely on old ways to save time and money. But using trusted shortcuts like spreadsheets for managing company BOMs and “free” tools like e-mail for communicating critical manufacturing data almost always reduce profitability. Spreadsheets grow complicated and unmanageable so quickly that profits are eaten away. Additionally, delays from out-of-control change processes — and steps to recover from delays — create unbudgeted overhead costs that further undermine remaining profits.

Three steps can help companies get the right systems in place to control their product information and their costs:

Step 1. Control your CAD data.
Take the time to configure a product data management vault to keep data secure, revision-controlled and accessible by downstream applications.

Step 2. Manage your BOMs.
Invest in a collaborative BOM management system to ensure all parties are working from the accurate version of the product record. Make sure the BOM management system can accept CAD data, manage documents, control change processes, and integrate with other applications like ERP.

Step 3. Imagine no shrink-wrap.
Companies often find they’ve pushed the limits of shrink-wrapped software for functions such as accounting and materials planning. Anticipating that, plan for growth into business applications such as ERP and MES, and be sure the ones you choose are compatible with your BOM management system.

Sometimes companies just have to get product out the door, forcing them to bank success on shortcuts and traditional processes. But not all traditions can handle the stresses and speed of modern manufacturing. Shortcuts like relying on spreadsheets to manage BOMs can introduce delays, unnecessary complications, and miscommunications that cost time and money throughout the project and into the future. By carefully selecting systems, companies can control costs by eliminating risks associated with manual, error-prone, and time-consuming processes.

More Information
For more information on Arena’s collaborative bill of materials and change management software, visit http://info.hotims.com/22920-122.