Product cost management - Wikipedia, the free encyclopedia

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Product cost management

From Wikipedia, the free encyclopedia

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.

Contents

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Scope
Processes and activities
Tools
Is PCM a software category?
Purposes
References

Scope
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]

Processes and activities

Depending on the scope the practitioner assigns to PCM, it may include one or more of the following
processes.[9][10]

Change management and building a cost/profit-conscious culture.

Building cost management into the Product Lifecycle Management processes
DFM Design for Manufacturing
DFA Design for assembly
DTC Design to Cost
DFP Design for Procurement
VA/VE Value Analysis / Value engineering

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Product cost management - Wikipedia, the free encyclopedia

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DFSS Design for Six Sigma

Cost targeting
Should Cost / Price
Make Buy
Capital asset justification
Commodity Pricing
Spend analysis

Tools
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]

Is PCM a software category?

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.[12] It is unknown whether PCM will become part of a bigger enterprise software category.
At least one of the major ERP vendors[13] and two of the major PLM vendors[14][15] have products
that they bill as Product Cost Management or analytics solutions.

Purposes
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]

References
1. "Product Cost Calculations, Oulu University
Library".

2. Target Costing: The next Frontier in Strategic

Cost Management, Ansari, S., Bell, J, and
CAM-I, CAM-I Publishing, 1997

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Product cost management - Wikipedia, the free encyclopedia

3. "TCMFramework, AACE International" (PDF).

4. Cost-Efficient Design, Ehrlenspiel, K., Kiewert,
A., Lindemann, U., Hundal, Mahendra, H. ed.,
Springer 2007
5. "Did PLM Give Up on Product Cost
Management by Jim Brown, Tech Clarity".
6. "ACHIEVING TARGET COST / DESIGNTO-COST OBJECTIVES by Kenneth Crow,
DRM Associates".
7. "World Map of Product Cost Management by
Eric Arno Hiller".
8. "PCM World Map".
9. "Key Principles of Effective Product Cost
Management, Industry Week, 7/25/11".

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10. "Product Cost Management: Optimizing

Product Differentiation and Life Cycle Costs to
Achieve High Performance, Accenture".
11. "What software do you use mainly in
assembling your cost estimates?, Linkedin Cost
Engineering Group".
12. "Using Product Cost Analytics to Keep
Engineering On Schedule and Budget, Michelle
Boucher, Aberdeen" (PDF).
13. "AGILEPRODUCT COST MANAGEMENT,
Oracle Data Sheet" (PDF).
14. "Windchill Cost".
15. "Solidworks Costing".
16. "Your Should-cost Number is Wrong, But It
Doesnt Matter by Eric Arno Hiller, Industry
Week, 10/21/12".

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