The high cost of cost mismanagement

Cost visibility is imperative for manufacturers in today’s complex business landscape. However, relying on manual methods and disconnected systems often obscures true costs leading to missed savings opportunities. In this post, we’ll review common pitfalls in cost management and their impacts, analyzing where greater connectivity and automation can drive major efficiency gains.

The issue with spreadsheets

Spreadsheets remain ubiquitous in manufacturing cost analysis. The flexibility to manipulate variables seemingly provides the perfect sandbox for modeling product and component costs. However, spreadsheets inherently lack governance, validation and integration with broader enterprise systems.

Without rigor and structure, errors creep in. Formulas get corrupted. Different versions of “truth” emerge across the organization. Engineering creates designs based on inaccurate cost targets. Procurement pays prices above reasonable market rates. The business loses millions from aggregate miscalculations.

Too many tools, too little integration

In the absence of a connected platform, departments cobble together their own cost analysis toolkits. Engineering builds basic models in PLM. Sourcing analysts use niche spend analysis solutions. Finance projects future cost scenarios in ERP. The problem? None of these systems exchange information efficiently.

Procurement doesn’t benefit from engineering’s evolving Bills of Materials and process plans. Finance extrapolations use stale data that no longer matches current component or operational costs. This thwarts a unified view of cost and hamstrings decisions with mismatched or incomplete perspectives.

The cost of manual processes

Even with proper tools, cost management disciplines often require significant manual effort. Specialized cost engineers translate imprecise data and assumptions into sophisticated bottom-up calculations. This occupies valuable expert time that provides little strategic differentiation for the business.

Instead of focusing on creative “should cost” modeling and value engineering insights, cost teams expend energy manipulating data and updating spreadsheets. This diminishes capacity to uncover insights that impact component design, supply negotiations and quality improvements.

The need for Cost Orchestration

Leading manufacturers are evolving cost management into a strategic capability called Cost Orchestration - aligning people, processes and technologies to enable agility and savings. This hinges on cost transparency, global collaboration and workflow integration.

Cost orchestration ties traditionally disconnected functions together around accurate and accessible cost data to drive better decisions. It provides a holistic view across the value chain by synthesizing perspectives from engineering, manufacturing, accounting, sales, procurement and leadership.

By connecting data from product lifecycle management, enterprise resource planning and other systems, cost orchestration eliminates the need for fragmented manual analysis.

Automation frees up expert resources to focus on value-added activities like should cost modeling, value engineering and scenario planning.

With trustworthy information powering decisions, cost transforms from opaque and speculative to concrete and actionable. The business gains control to optimize tradeoffs between component materials, supply chain sourcing, carbon impact and profitability goals. Compound savings drive margins as cost orchestration institutes enduring advantages.