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Calculate Costs Faster and More Reliably with SAP Product Lifecycle Costing

March 17, 2016 by Iris Nagel-Martin 84

Companies often need to make an accurate cost calculation for a new product early on in the product life cycle, at the engineering or quotation stage. SAP Product Lifecycle Costing powered by SAP HANA allows them to do just that.

Anyone who’s in the business of turning innovative ideas and designs into products is familiar with the problem: There comes a point where you have to know what that new product will actually cost to deliver. Early-phase costing is no easy task; long lead times and a host of unknown factors combine to make it a risky business that requires a highly transparent process.

In the past, customers have tended to handle their product costing in complex customer-specific Excel spreadsheets that can be prone to data-entry errors along the business process chain and are notoriously difficult to manage securely. Operational systems such as ERP systems are not suitable for the job, however, because ‒ at this early stage of the product life cycle ‒ they contain either very little or none of the necessary data and because entering that data would be too complicated and time-consuming or, in some cases, undesirable.

“We designed SAP Product Lifecycle Costing specifically for the task of calculating product costs,” says Petra Koepfer-Behncke, the solution owner. “Our solution allows you to structure and estimate costs in the early stages of the product lifecycle, and to identify cost drivers and alternatives,” she explains. The sheer weight of demand for a solution of this kind has prompted a massive rush of inquiries: Koepfer-Behncke’s ‘phone has barely stopped ringing since the beginning of the year.

Three Main Scenarios to Estimate Costs

SAP Product Lifecycle Costing is designed for use in three main scenarios. The first scenario involves preliminary cost estimates and is relevant chiefly for companies that require cost information for a product they are still developing or for which a customer has requested a quote before development work has actually begun. One example would be an automotive supplier who wants to submit a quote for the price of a new assembly to an OEM. In keeping with the principles of transparent production, the manufacturer will often want to analyze the cost breakdown for the product – which it can do using the SAP solution’s cost component split function. In a project such as this, it can take several years to progress from the quotation stage to the start of production, and there is no guarantee that the assembly will ever be manufactured at all. So a solution that simplifies the process of estimating costs makes sound financial sense.

The second scenario involves calculating the cost of customer-specific engineered products, such as heavy machinery for the industrial equipment sector that contains engines or parts designed and built to customer specifications. You can’t use a market price to cost customer-specific products, which is why it is important to be able to analyze each individual cost element in the production process. The lead times in projects of this kind are much shorter.

The third use case involves estimating the cost of a product across its entire lifecycle ‒ taking account of preliminary cost estimates and actual costs, as well as the costs of operating and disposing of the product in question.

Koepfer-Behncke currently has 30 cooperation partners for SAP Product Lifecycle Costing and she reports that demand for the solution is extremely strong, particularly among German automotive suppliers. But the American market is growing too, and, with SAP Product Lifecycle Costing available worldwide, more and more consultants are being trained to implement it.

Eliminating Silos and Crossing the Departmental Divide

Depending on the degree of process adaptation needed to meet a customer’s requirements, the solution can be installed in just a few months. Its implementation heralds some key changes in internal processes, too. Generally speaking, the engineers who initially cost new products do not communicate with the controllers whose job it is to assess the actual costs in the production phase. Which means that the people who plan future products often never find out what the costs of production turned out to be.

SAP Product Lifecycle Costing links the world of product planning with the world of product costing.

“It is now possible to compare the different versions of cost calculations that are made in both. Which means that the worlds of development and production begin to dovetail more closely in terms of achieving cost transparency.”

Other Benefits of SAP Product Lifecycle Costing

  • Calculations are powered by SAP HANA – and even large product structures can be calculated in real time
  • ERP data and data from other sources can be integrated into cost estimates and calculations
  • The cost structure can be created using existing engineering BOMs, defined from scratch, or derived from production BOMs for predecessor products in the ERP system.
  • The extension options offered are intuitive and easy to use
  • The solution has an easy-to-use, Excel-like user interface
  • The solution became available worldwide in the first quarter of 2016
  • The front end and back end are separate, which means that the functionality can be used with other frontends too.

 

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