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Product cost management (PCM) is a set of tools, processes, methods, and culture used by firms who develop and manufacture products to ensure that a product meets its profit (or cost) target.
There is not an agreed-upon definition for product cost management or an agreed scope for what it encompasses. Some people argue that PCM is a synonym for target costing. [1] [2] [3] However, others argue that PCM is different, because target costing is a pricing method, whereas, PCM is focused on the maximum profit or minimum cost of a product, regardless of the price at which the product is sold to the end customer. [4] Some analysts [5] seem to equate PCM to design-to-cost. [6]
Some practitioners of PCM are mostly concerned with the cost of the product up until the point that the customer takes delivery (e.g. manufacturing costs + logistics costs) or the total cost of acquisition. They seek to launch products that meet profit targets at launch rather than reducing the costs of a product after production. Other people believe that PCM extends to a total cost of ownership or lifecycle costing (Manufacturing + Logistics + operational costs + disposal). Depending on the practitioner, PCM may include any combination of organizational or /cultural change, processes, team roles, and tools. Many believe that PCM must encompass all four aspects to be successful and have shown how the four parts work together. [7] [8]
Depending on the scope the practitioner assigns to PCM, it may include one or more of the following processes. [9] [10]
Initially, PCM was done with pencil and paper. However, with the advent of computers, companies started to create internal software for predicting, controlling, minimizing, recording, and sharing product costs. With the invention of spreadsheets, PCM tools got a major boost in ease of use and adoption. In the late 1970s, specialized third-party software was developed that could do some of the activities included in PCM. Today, there are several tools that directly or indirectly promote themselves as “Product Cost Management” software solutions. Some of these tools also state that they can help users with problems of target costing, as well.
However, despite the creation of third-party tools, spreadsheets, specifically Microsoft Excel may still be, overwhelmingly, the most popular tool for PCM practitioners. [11]
In the mid-2000s, there was some discussion of whether PCM (sometimes referred to as Enterprise Cost Management) would become a separate software category or be part of one or more of the existing enterprise software categories of enterprise resource planning (ERP), product lifecycle management (PLM), or supply chain management (SCM). The vendors who make specialized PCM software have not yet gained the revenue necessary for the major industry analysts to proclaim PCM as its own category. However, there has been at least one analyst report focusing on product cost analytics. It is unknown whether PCM will become part of a bigger enterprise software category. At least one of the major ERP vendors [12] and two of the major PLM vendors [13] [14] [15] have products that they bill as Product Cost Management or analytics solutions.
The strategic purpose of PCM has been to maximize the profit of products through making a product the most cost efficient. Tactically, this has been accomplished by using the various PCM techniques and tools discussed above in a predictive way. That is, the tools are used to estimate a cost that is used as an absolute value for what a cost should be, or to relatively evaluate the cost of one design or manufacturing process or supplier versus another. In 2012, some experts in the PCM field have advocated that the purpose of PCM is not only to predict the most accurate cost, but also as a tool for leverage in negotiation. [16]
Enterprise resource planning (ERP) is the integrated management of main business processes, often in real time and mediated by software and technology. ERP is usually referred to as a category of business management software—typically a suite of integrated applications—that an organization can use to collect, store, manage and interpret data from many business activities. ERP systems can be local based or cloud-based. Cloud-based applications have grown in recent years due to information being readily available from any location with Internet access. Traditional on-premise ERP systems are now considered legacy technology.
Product life-cycle management (PLM) is the succession of strategies by business management as a product goes through its life-cycle. The conditions in which a product is sold changes over time and must be managed as it moves through its succession of stages.
Marketing management is the organizational discipline which focuses on the practical application of marketing orientation, techniques and methods inside enterprises and organizations and on the management of a firm's marketing resources and activities.
In industry, Product Lifecycle Management (PLM) is the process of managing the entire lifecycle of a product from its inception through the engineering, design and manufacture, as well as the service and disposal of manufactured products. PLM integrates people, data, processes and business systems and provides a product information backbone for companies and their extended enterprises.
Product data management (PDM) should not be confused with product information management (PIM). PDM is the name of a business function within product lifecycle management (PLM) that is denotes the management and publication of product data. In software engineering, this is known as version control. The goals of product data management include ensuring all stakeholders share a common understanding, that confusion during the execution of the processes is minimized, and that the highest standards of quality controls are maintained.
Business software is any software or set of computer programs used by business users to perform various business functions. These business applications are used to increase productivity, measure productivity, and perform other business functions accurately.
Computer-aided technologies (CAx) is the use of computer technology to aid in the design, analysis, and manufacture of products.
A warehouse management system (WMS) is a set of policies and processes intended to organise the work of a warehouse or distribution centre, and ensure that such a facility can operate efficiently and meet its objectives.
Enterprise software, also known as enterprise application software (EAS), is computer software used to satisfy the needs of an organization rather than individual users. Such organizations include businesses, schools, interest-based user groups, clubs, charities, and governments. Enterprise software is an integral part of a (computer-based) information system; a collection of such software is called an enterprise system. These systems handle a number of operations in an organization to enhance the business and management reporting tasks. The systems must process the information at a relatively high speed and can be deployed across a variety of networks.
Supply-chain optimization (SCO) aims to ensure the optimal operation of a manufacturing and distribution of supply chain. This includes the optimal placement of inventory within the supply chain, minimizing operating costs including manufacturing costs, transportation costs, and distribution costs. Optimization often involves the application of mathematical modelling techniques using computer software. It is often considered to be part of supply chain engineering, although the latter is mainly focused on mathematical modelling approaches, whereas supply chain optimization can also be undertaken using qualitative, management based approaches.
Digital Prototyping gives conceptual design, engineering, manufacturing, and sales and marketing departments the ability to virtually explore a complete product before it's built. Industrial designers, manufacturers, and engineers use Digital Prototyping to design, iterate, optimize, validate, and visualize their products digitally throughout the product development process. Innovative digital prototypes can be created via CAutoD through intelligent and near-optimal iterations, meeting multiple design objectives, identifying multiple figures of merit, and reducing development gearing and time-to-market. Marketers also use Digital Prototyping to create photorealistic renderings and animations of products prior to manufacturing. Companies often adopt Digital Prototyping with the goal of improving communication between product development stakeholders, getting products to market faster, and facilitating product innovation.
Plant lifecycle management (PLM) is the process of managing an industrial facility's data and information throughout its lifetime. Plant lifecycle management differs from product lifecycle management by its primary focus on the integration of logical, physical and technical plant data in a combined plant model.
Process development execution systems (PDES) are software systems used to guide the development of high-tech manufacturing technologies like semiconductor manufacturing, MEMS manufacturing, photovoltaics manufacturing, biomedical devices or nanoparticle manufacturing. Software systems of this kind have similarities to product lifecycle management (PLM) systems. They guide the development of new or improved technologies from its conception, through development and into manufacturing. Furthermore they borrow on concepts of manufacturing execution systems (MES) systems but tailor them for R&D rather than for production. PDES integrate people, data, information, knowledge and business processes.
ProductCenter is a commercial software product, that is an integrated suite of Product Lifecycle Management (PLM) software for managing product data. The software was engineered for the Microsoft Windows and UNIX operating systems. Along with core applications, it includes localized and web-based services. ProductCenter is suited for managing various types of CAx data, but it can be used for many forms of data management and product management.
Manufacturing execution systems (MES) are computerized systems used in manufacturing to track and document the transformation of raw materials to finished goods. MES provides information that helps manufacturing decision-makers understand how current conditions on the plant floor can be optimized to improve production output. MES works as real-time monitoring system to enable the control of multiple elements of the production process.
NX, formerly known as "unigraphics", is an advanced high-end CAD/CAM/CAE, which has been owned since 2007 by Siemens Digital Industries Software. In 2000, Unigraphics purchased SDRC I-DEAS and began an effort to integrate aspects of both software packages into a single product which became Unigraphics NX or NX.
Siemens Digital Industries Software is an American computer software company specializing in 3D & 2D Product Lifecycle Management (PLM) software. The company is a business unit of Siemens, operates under the legal name of Siemens Industry Software Inc, and is headquartered in Plano, Texas.
PTC Windchill is a family of Product Lifecycle Management (PLM) software products that is offered by PTC. In 2004, as part of their expansion in the area of collaboration tools, they arranged having "a hosted version of Windchill to small- and medium-sized customers." As of 2011, products from its marketer, PTC, were being used by over 1.1 million users worldwide.
Configuration Lifecycle Management (CLM) is the management of all product configuration definitions and configurations across all involved business processes applied throughout the lifecycle of a product.
