The transformation of cost engineering

January 22, 2020

Two major events of the German cost engineering community took place during the course of the past two weeks – and the Strategy Engineers Product Cost Optimisation team joined in to support shaping the future of cost engineering in the Automotive and other technology driven industries. In Frankfurt, the “The Automotive Cost Engineering Europe hosted by Hanson Wade” took place while Würth Group hosted the 2019 BME-Value Day in Künzelsau. Next to great opportunities to extend our network, we had the chance to gain insight and perspectives and discuss with experts from different industries. For the future of automotive cost engineering, we see two main challenges that we want to outline in the following: the transformation of cost engineering regarding supplier and cost landscape as well as data transparency and handling.

Cost engineers have to face a transformation of both supplier and cost landscape

New technologies will capture the automotive market and lead to a shift from mechanical to software- and E/E-based vehicles. This forces all players of the supply chain to rethink not just in terms of procurement but also in terms of cost engineering.

As first consequence, long-term partnerships with established suppliers as they exist today will be replaced by short-term partnerships with varying new technology suppliers that conquer the market. In addition to this new form of partnerships, multi-sourcing strategies become necessary not just because of the rapidly changing supplier landscape but also because of today’s insecure international policies. These lead to highly fluctuating and hardly predictable material costs due to changing customs and price inflation of raw material. Next to this, with the introduction of new technologies, cost drivers will become more abstract. The “tangible” cost drivers that determine todays vehicles (e.g. mechanical components of well-known, labour intense material) will be replaced by immaterial cost drivers (e.g. issues of hardware and software security, component reliability or electrical platform components). Compared to easily modularizable mechanical products, software and E/E components will also have a more fluent transition and thus will be more challenging to assign to one specific vehicle module and consider separately in terms of cost.

Companies can overcome these challenges by establishing a highly adjustable and flexible supply chain together with new partnering-models, by promoting agility internally in their organization and by offering the highest possible degree of cost data transparency to their supply chain partners. Latter leads us directly to the second big challenge for cost engineering in the future:

Data transparency and handling are the largest challenges when it comes to cost engineering

In a perfect world, complete cost data transparency throughout the whole supply chain would not just speed up the process of cost engineering but also lead to an easier and better cost calculation during all stages of a product’s lifecycle. But since the competing environment of today will experience even more pressure with new technologies emerging (as mentioned in the previous section), cost benefits might decide between rise and fall of a company even more than today. So it is no surprise that full disclosure of data is usually not even considered for any side of the supply chain. As of now, there is no practicable solution yet to cope with the issues of data confidentiality and security between supply chain partners despite the advantages a higher data transparency would come with.

Connected to this topic is the issue of data handling. Without standardized data formats and interfaces both inside the company but also with supply chain partners, consistent cost data sets are hard to maintain. A higher degree of data standardization would facilitate automation and integration of cost calculation throughout the whole product lifecycle. This issue is one of the main reasons why the demand for holistic and integrable (cost) data tools is so high today.

To draw a bow back, something to think about: With new technologies, new mobility concepts will arise which might require a completely new way of thinking for cost engineering. Will the focus of cost engineering shift from “total vehicle cost” to “cost for one hour of mobility”?

On both conferences, cost engineering experts from our mother company, AVL List GmbH in Graz, shared their insights on stage. At the Automotive Cost Engineering Europe, Christoph Sams and Istvan Barna shared their insights on the importance of setting costs as early as possible in product development to improve efficiency. On the BME-Value Day, Georg von Falck, Skill Area Manager of Product Quality Assurance and Production Engineering, participated in a panel discussion about the role of cost engineering in early phases of product definitions.