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The aerospace industry today is a buyer driven market, where reducing product
cost and delivery cycle time are critical for aerospace OEMs and their key suppliers
to remain competitive. However, these companies produce highly complex
products that require long development cycles and are manufactured in low
volumes.
Since most of the aerospace OEMs source a large percentage of their component
from suppliers (commonly 50-70%), this area requires special focus. It is
important for OEMs to understand the costs involved in production of a part or a
component sourced from an external supplier, as it will enable effective price
negotiations with suppliers and also help assess
Companies worldwide should aim to identify the major cost drivers of components
they design, manufacture and procure, much earlier in the product development
cycle. With cost assessments early in the product development process, one can
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Current costing techniques vary throughout the aerospace industry and include
the use of both proprietary and non-proprietary methods. Most companies still
retain a traditional cost estimating department that uses experienced individuals
backed by large proprietary databases. However, lack of adequate cost information
can lead to poor decision making, time consuming redesigns, and high component
costs. Zero based costing has been around for quite some time, but the availability
of digital engineering models and specialized costing software have significantly
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A well managed should costing and analysis initiative is clearly a critical activity
for the aerospace companies, and sets the stage for consistent cost management,
that leads to increase in profitability and stakeholder returns.
Should costing is a process, whereby one can determine the cost of the part or
product, based on the raw materials used, manufacturing costs and overhead
production costs. This can be achieved by analyzing the engineering models to
understand the raw material required, defining the manufacturing processes
required to deliver the required form features, and calculating the total costs
through the use of rate data related to material costs and processing costs. The
ultimate goal of any should cost analysis initiative is to provide enough
information to enable (depending on the stage) designers to modify raw material
or form feature requirements, or enable suppliers to modify manufacturing
processes with a view to reduce costs.
When the product reaches industrialization, should cost models help to keep
sourcing cost low. Cost models empower the purchasing team with knowledge of
manufacturing processes, machines used, etc. which helps them effectively
negotiate with suppliers. The costing model also provides a basis to seek out the
right supplier, by comparing between the actual procurement or manufacturing
cost and the cost model; and reconcile differences.
Although various cost estimation software are available in market to perform cost
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modeling, the core of good should costing solution lies in deep understanding of
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Conclusion
Aerospace companies need take a more holistic approach towards should costing
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as a tool that can not only help contain costs, but can help provide answers to
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Business intelligence (BI) software tools are useful but not sufficient for potentially
better decision making. New technologies are surfacing that leverages the
knowledge of what is arguably an organizations most valuable asset its own
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employees.
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Current research from the North Point Group, a software and consulting firm,
reveals that there is nearly 2X the amount of data and only 47% of the required
knowledge in the average organization that is needed to make timely and accurate
decisions. The research concludes that the continual mining of transactional
databases (e.g., ERP systems) provides only a partial contribution to make good
decisions.
This understanding leads to questions: (1) Do you have all of the required FBAs to
achieve Best-in-Class performance? (2) If so, what is the performance level of
those FBAs? Identifying the business needs or gaps between where the
organization is today and where they would like to be in the future is a first step.
The next step is to identify and take actions and to achieve sustained performance
leadership. Both can be better achieved by involving employees the beginning of
mining the minds.
Executives, managers, and employee teams already know many of the risks that
should be mitigated in an organization and also which of the risks that should
potentially be leveraged to solve a problem or pursue an opportunity. However,
capturing, understanding and leveraging the existing KEP (Knowledge, Experience
and Performance) and the missing KEP into improved enterprise performance is
achieved by far few organizations.
Mining the minds of the organizations employees to capture and use the following
analytics is achievable today. For example, the North Point Group combines these
tools:
KEP Index to identify the Knowledge, Experience and Performance of the functional
organization.
MENU Organization Performance Index to measure how effective and efficient the
company is running and the organization performance from Finance to Operations that affect
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Speed Indices to identify the speed of the organization relative to identifying missing
critical information, cost improvement opportunities, customer connectivity issues, business
model improvement opportunities, etc.
In the past the best leaders and executives had the best answers. That is not true
today. Now the best leaders and executives have the best questions! They can no
longer rely on their past experiences or intuition that got them promoted to their
C-suite roles. They need to create a culture for analytics including skills and
competencies in their work force to be analytical.
Do organizations have the knowledge to know what to ask for, where to get it if
they do not and how to use it? Success at becoming a Best-in-Class performing
organization can be achieved by providing analyzable information for insights and
decision making.
PERSPECTIVES
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