Dassault Systèmes continues to bridge the PLM/ERP gap with cost lifecycle management.
Effective lifecycle costing involves managing a product’s cost configuration structure from its initial concept until its end-of-life. Effectively, engineers need to assess costs from the design phase through to prototyping, industrialization, process design, supply chain integration, part purchasing, tool acquisition, production execution factory operations and beyond. To perform costing, product engineers need to simulate and plan for future product costs at an early stage while continuously optimizing supply chain operations.
Among their many features, enterprise resource planning (ERP) systems provide a way to comprehensively assess an organization’s financials and manage procurement processes. They can balance sustainability with regulatory requirements and inflation and automate financial reporting. There are other systems and tools, such as specialized financial management or procurement management software, that can also be used for these tasks.
The choice of system depends on an organization’s specific needs, goals, budget, IT infrastructure, data integration requirements and the complexity of their financial and procurement processes. PLM software companies also have integrated product costing and profitability capabilities in their software. For example:
- Siemens Teamcenter offers product cost management tools to help product development teams specify target costs, simulate pricing changes and identify potential savings.
- SAP PLC helps calculate and assess the impact of product costs by comparing alternative parts, tracking inventory valuation and simulating production costs.
- PTC Windchill Cost helps product teams make better decisions by simulating target and product cost performance and providing better visibility into costs.
In February 2023, Dassault Systèmes announced the addition of similar capabilities to their portfolio, referring to “Renault Group (…) leveraging the data science capabilities of Dassault Systèmes’ 3DEXPERIENCE platform to understand the increase of raw material prices and model the most relevant optimization scenarios to reduce the impact on vehicle production costs.”
By using the Dassault Systèmes announcement as an example, I explore how PLM software can enhance product cost lifecycle management to bridge some of the gaps with ERP systems.
Broadly speaking, the product costing lifecycle involves determining the cost of a product from conception to sale. For our purposes, let’s segment this into six steps:
- Planning and analysis: setting cost objectives and structure.
- Raw material procurement: acquiring materials and negotiating best prices.
- Production: manufacturing, assembling and testing the product.
- Finished goods inventory: holding the finished product until sold.
- Sale and logistics: recognizing revenue and tracking delivery costs.
- Cost accounting: tracking costs to make pricing and production decisions.
With integrated lifecycle costing solutions, engineers can repeat these steps for every product created to ensure that the company can manage costs and remain profitable. Most cost optimization scenarios directly relate to one or more additional core business capabilities, such as ESG reporting, compliance, quality, supply chain management and more.
In this context, Dassault Systèmes sets the scene by highlighting that:
“Competitive automotive manufacturers must balance sustainability with regulatory requirements as well as inflation. Highly volatile raw material prices due to armed conflicts, health crises, climate change, consumer demands and other global factors make it difficult to ensure a return on investment when aligning the price of a vehicle with the cost of its parts.”
The idea of managing product costs and lifecycle is not a new trend. In fact, it has been a priority for the automotive industry (and beyond) for many years, even beyond the current global challenges. The reason for this is that effectively managing product costs and lifecycle is crucial to maintain profitability and competitive advantage.
To achieve this goal, there are several key questions that need to be addressed, such as:
- How to manage marketing, technical and other business requirements as well as the associated cost implications? This involves aligning various requirements and ensuring they are met throughout the product development lifecycle.
- How to embed ESG requirements into the product development lifecycle? This requires integrating environmental, social and governance factors into the product design and development process.
- How to plan, forecast, assess and track product costing? This involves analyzing and monitoring product costs at each stage of the lifecycle, from conception to sale, to ensure they are in line with target objectives.
- How to embed supply chain costing parameters? This involves incorporating supply chain costs into the overall product cost structure.
- How to drive effective supplier sourcing negotiations? This requires understanding supplier capabilities and negotiating favorable terms and pricing to achieve cost savings.
- How to assess the cost of new product designs, covering both direct and indirect costs from labor, material, production, logistics, operating, maintenance, disposal and more? This requires a comprehensive analysis of all costs associated with the product design and development process.
- How to relate direct, earned and contributed revenue from product sales, and realize return-on-investment? This involves understanding the revenue generated by the product and balancing it against the costs incurred to produce and sell the product to ensure profitability.
By addressing these questions, companies can effectively manage product costs and lifecycle, which is essential for maintaining profitability and competitiveness in the automotive industry. Failure to do so can result in cost overruns, missed deadlines and reduced profitability. To effectively manage and optimize product cost, organizations must have a structured approach that involves collaboration across departments, effective communication and the use of appropriate costing management tools and technologies.
In this context, Dassault Systèmes report that “the 3DEXPERIENCE platform provides Renault Group with a unique combination of artificial intelligence, machine learning, collaborative business processes and an enriched single 3D data model of the vehicle to better manage the business impacts of market volatility. Renault Group can aggregate equipment designs, configurations, historical data and forecasts and test different design scenarios in a virtual twin to understand, anticipate, quantify and optimize vehicle price and cost, as well as improve equipment purchasing negotiations by sharing these insights with other stakeholders.”
Furthermore, Laurence Montanari, vice president of Transportation & Mobility Industry at Dassault Systèmes, said:
“In a previous announcement, we talked about the virtual twin of the car and the enterprise to support the ‘Renaulution’ plan. […] Our cost intelligence solution with NETVIBES artificial intelligence has allowed Renault to connect its data across the enterprise in less than six months. Now, we are extending the virtual twin from the vehicle to the supply chain. During this uncertain time, our solutions have given companies the ability to simulate and anticipate impacts due to supply chain shortages or raw material price increases.”
Virtual twins are not limited to technical simulation models; they also include cost simulation models that are integrated into cost accounting systems, typically ERP platforms. Thus, bridging the ERP gap on costing clearly implies bringing cost business intelligence into engineering and supply chain processes, governance and associated ways of working.
Accurately costing products is crucial for any large company with a diverse range of products, as it helps to determine profitability. Companies with complex product portfolios may need to use a detailed process to determine the cost of each individual product. This is also a driver for infrastructure architecture modernization and new operational technologies.
