Profit is the difference between the price you sell the product for and the cost involved to produce the final product.
There are two ways to make more money on your products
- By increasing the unit selling price of the product or increasing sales volume
- By controlling the cost of the product
Controlling the cost of production will always give the most favourable results in both the short and long run instead of increasing the product price.
Cost Control and Estimation Is A Complex Affair
Engineering products are built using several small components with a variety of permutations and combinations of components together, forming a finished product. That large number of small components makes the estimation tedious.
There are many different methods to develop a product:
- Using in-house resources and facility entirely
- Procuring sub-assemblies from one or multiple vendors and assembling in-house
- Procuring a part directly from a vendor
- Combination of all the above
Each approach has its pros and cons. This also depends upon company to company, which approach they select based on their capacity and capabilities. An important point here is to know that each approach is extremely complex and error-prone when it comes to cost control and estimation.
Human Errors Are Very Obvious
The human brain works faster than any computer in the world, but at the same time, it gets tired, lethargic and lazy while performing a repetitive task. We often fit ourselves into a schedule and when we do not come across any error for a few times, we tend to start ignoring it or taking it lightly.
Specifically talking about engineering costing, it’s humongous tasks, and many organization are working on the manual process of controlling cost and estimation. Cost estimation is mostly done on Mircosoft Excel. MS Excel has its benefits, however, consider the fact that the growing organization should migrate to secure and scalable solutions. End of the day, costing data is an important data of any organization that requires extra security. Just one manual/human error can change costing and mislead you to make a wrong decision.
Speed and Accuracy Matters
Industry 4.0 is emphasizing a lot on replacing the human with the virtual human for the repeat task to improve the productivity and efficiency of the production unit. When an organization aspires to be competitive and profitable, speed and accuracy matter a lot. Though the human brain creates the machine, however, when it comes to speed and accuracy, no matter, a human cannot beat the machine.
The machine never feels tired repeating the same task again and again and it goes on repeating tasks till it obsoletes. In-fact it maintains the same level of accuracy all the time every time. A machine never understands feelings and emotions. It works as per its design, and logic that has been written behind its development.
How To Resolve These Problems
If you haven’t already heard of the name Volvo Eicher Commercial Vehicles Limited, they are leading global brand in the automobile industry that sells a wide range of future generation trucks and buses for multiple domains. In India, it has a market share of above 40% and a large workforce of 11000+ employees.
VECV faced problems that we have just read and trying to control and automate the cost estimation of the production.
VECV was using MS-Excel for developing a cost sheet of over 20000+ BOMs from approx. 30000+ parts. These parts are either produced in-house or procured from various vendors. The micro-level costing of parts included material cost, process cost for conversion, inventory carrying cost, and other associated costs such as freight, handling, forwarding etc. It was a complex, time consuming and error-prone process. Impact analysis of the change in the cost of a particular part and/or subpart to the overall cost was even more complex. Data security was a big question.
With in-depth first-hand experience and through implementation based research, they found a tool that addresses these and several other aspects of cost control and estimation of the production.
Solutions implementation and results were amazing:
- 20% Increase in Employee Productivity within 6 months from implementation
- Saved 40 hours per person per month
- Within 9 months they achieved a 30% Increase in Operational Efficiency
They were able to calculate an accurate cost for using 200+ elements affecting the overall cost.
Check out the case study and know-how automation can solve a lot of problems and help you optimize the resources at your manufacturing unit by controlling, projecting, and planning the cost structure for product development.
Cost IT Right is the solution that VECV has implemented in their system. It is an intelligent cost estimation and cost control solution which gives complete visibility into production cost and also controls over, future projections and more. This software offers you:
- Cost Control and Estimation
- Raw Material Price Inflation Impact Analysis
- Suppliers’ Share of Business (SOB) Analysis
- Cost Drivers Management & Analysis
- Integrated Workflow for Approvals
- Cost Reduction of Opportunity Analysis
- Dashboard and Reporting
- Vendor Portal for RFQ, Negotiation and Ordering
Cost IT Right does so by handling the problems in the current cost control system of manufacturing units
- MS excel dependency
- Complex comparison of price quotations
- Inconsistency in documents
- Raising BOM level cost sheet
- Unorganized historic data
- People driven processes
- Inaccuracy in reports and insights
The system is designed to avoid human errors and speed up your estimations and help you control the costs effectively.
If you are into the manufacturing industry and looking for a solution to manage and minimize your production cost through a better-managed environment to determine the end product development cost keeping in mind the variety of factors affecting your production, then CostItRight is a perfect product for your organisation.
CostItRight will not only help you determine the cost but also help you make your plans for future projections and procurement plans. Connect with our experts to schedule a demo and understand the practical benefits of the toll in your organisation.