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Automatic Costing Calculation

Estimating product cost during early Product Design stages

Typically, product cost is comprised of direct and indirect costs.

  • Direct costs are costs related to the product which includes direct material and direct labor, and can be assigned in clear terms.

  • Indirect costs are costs related to the facility, capital equipment and professionals engaged in an organization. These costs need to be distributed across multiple products that the organization produces at a given time. It includes capital expenditure (CAPEX), cost of the engineering design and manufacturing overheads.

Direct Cost automatic estimation

The product information will be extract from CAD model automatically in order to build manufacturing process document which fully declared workshop resources such as machines, tools, labor skills, raw material, …

Based on production data, The system can generate the estimated direct cost for each manufacturing order, predict raw material, semi-product

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Material Direct Cost

Cost of the material used in creating the product accounts to almost 45% to 60% of the total cost of a part or product. Thus the control of this cost can significantly improve the cost estimation accuracy and the effects of optimization methods applied on.

With the material cost control on place, the company can also apply several optimization approaches during the early design phase:

  • Focus on functional value: Avoid design practices that result in poor yield i.e. higher rejection of parts during manufacturing process. For example, Adding the cost of a part unknowingly by specifying tighter tolerances or features that necessitate expensive tooling or incorrect dimensioning.

  • Reduce parts count: Follow a lean design approach to find opportunities for either combining or eliminating a part.

  • Use less expensive raw material: Designers should avoid using expensive materials when the requirement is only for a ‘good’ material.

  • Use high volume parts: Implement part standardization for frequently used parts. This saves indirect overheads such as material handling and purchasing, reduces inventory and cost per part through Total Cost Productivity (TCP).

Direct Labor Cost

Cost for manufacturing is directly dependent on product design which makes it essential for product designers to follow practices that optimize overall costs.

Once the Labor cost controlled, different optimization methods can be applied:

  • Simplify manufacturing methods: Reduce the number of parts, eliminate fasteners and interconnects, design for top-down assembly.

  • Optimize manufacturing time: While designing, keep in mind the machine set-up and changeover times. Use the right jigs, fixtures and tooling and follow concepts such as Single Minute Exchange of Dies (SMED).

  • Reduce required skill-level: Design products that are simple to manufacture, assemble and test, thereby reducing per hour labor cost.

Indirect Cost automatic estimation

Considering indirect costs that are related to a product development, leaving aside the administrative indirect costs such as Marketing, Office expenses etc. Product cost is comprised of the following indirect costs:

  • Capital Expenses (CAPEX) – Variable cost 

  • Cost of Engineering Design – Fixed cost 

  • Manufacturing Overhead – Variable cost

These types of costs will be allocated according to Vietnamese accounting standards and managed in a smart database that supports the ability to calculate product costs/work orders automatically.

The cost management standard runs on the 5W model (Where, when, who, what, why) to ensure auditability and evaluation.

Data can be automatically synchronized with SAP system.

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CAPEX

CAPEX includes investments for equipping the production line with machines, inspection tools etc., to manufacture parts or products. Usually such capital investments are made to address more than one part or product requirement and hence cannot be directly appropriated to the cost of a particular part or product.

Key factors that contribute in optimizing CAPEX are:

  • Avoid having dedicated equipment: Risks are higher with investing on a dedicated equipment intended for a sole product. This could potentially result in high maintenance costs. The equipment could also become a bottle neck due to down-time. This also includes the risk of the obsolescence of the equipment in case of a product failure.

  • Outsource capital-intensive processes: An alternate for the above will be to outsource such parts instead of purchasing the equipment. This will help in reducing the overheads in case the equipment does not have a continuous utilization.

  • Optimize tooling cost: Tooling cost is a significant CAPEX to be considered in all product cost calculations. Opportunities for maximizing the investments made in tooling exist by using ‘Standardization’ and ‘Modularization’ techniques in the design stage.

Cost of Engineering Design

Engineering Design is a onetime fixed cost (for the most part of it, unless there are some design changes required to address quality issues from the field) and is a significant contributor to indirect costs. Usually the first expense for a manufacturer, this can be an iterative and cost intensive activity depending on the nature of the product and technology.

Different optimization methods on this area:

  • Standardization and Modularization: Conceptualizing the design with built-in modularity for providing additional features and functionalities helps in optimizing the design costs for the long haul. While it may require more hours in the initial stages, the payback of a modular design is usually multi-fold. It enables the manufacturer to launch model line variants in real time to stay competitive, reducing both development time and costs.

  • Standardization helps in reducing the development cycle time and also in improving the reliability of the design. Using existing designs and processes to build new design saves design cost and accelerates the time to market.

  • Eliminate unnecessary complexity: More complexity means more cost. The simpler your designs, simpler is the manufacturing.

  • Avoid over-design: Clients will not pay for performance or features that are might not be necessary but product owners incur the cost of including them.

  • Understand stated versus implied needs: Many a times, engineers might miss to understand the fine line between a stated and implied need. Understanding the voice of the customer is critical in carving out the stated needs of a product. But, it is the engineer who needs to capture the implied needs, which customers might not always express verbally.

  • Optimize make vs buy: While buying a part means no design cost, designing it involves significant costs for engineering, reliability and useful life testing before it is approved for use. Usually, proprietary parts or designs are engineered in-house where as non-critical areas can use standard off-the-shelf solutions available in the market. This will shorten the overall project schedule, reduce cost of engineering and also the part cost.

Manufacturing Overhead

Understanding the impact of these intangibles can help in reducing the part or product cost.

The methods of optimization while on design phase:

  • Reduce raw material and WIP inventory: Designers should make use of Just in Time (JIT) inventory management techniques during the design stage. For example, using a Loctite as an adhesive instead of a Room Temperature Vulcanizing (RTV) sealant can enable a sub-assembly to be shipped in JIT mode instead of having to give a wait time for the RTV to cure before handling the sub-assembly.

  • Usage of consumables in the shop floor: Consumables such as glue, lubricant etc., used as a part of manufacturing, can end up being expensive. These are usually procured in large containers and there is possibility of spillage, pilferage of unused quantities or becoming unusable due to drying. Eventually, it results in consuming more than the required quantity.

Our automatic costing evaluation built on SolidWorks and ARAS Innovator

Using the capacity of PLM solution to manage information from standardized working process such as product design, manufacturing, purchasing, asset control... We have developed a solution to automatically evaluate the product cost as early as during the product design phase.

The calculation product preliminary cost is purposed to:

  • Enhance the quality of the quoting process: by adding the capacity to evaluate the product preliminary cost during the quoting phase, users have the possibility to better negotiate the price and eliminate competitors.

  • Planning orders and cost control: users from planning department can calculate more exact planning data on the basis of concrete quantity data.

For Order-based production companies, the possibility to get cost information as early as possible in the product lifecycle phase is a life saving tool to help them staying profitable.

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