The automotive industry is experiencing a rapid and dynamic transformation fueled by changes in product innovation, process automation, and evolving market conditions.
In this constantly evolving space, automotive OEMs and their Tier 1 and Tier 2 suppliers need to find ways to remain competitive. This is why the implementation of manufacturing cost estimation and analytics-based cost algorithms is becoming progressively more important.
But to accurately estimate costs early in the planning and bidding phases, the auto manufacturers need to consolidate all the disparate costing data into a singular, standardized format and start getting micro-level costing and insights on the cost drivers regardless of the location of their manufacturing sites.
“Costing data standardization : A must to stay competitive” With Costing data standardization, organizations can establish a better understanding of their costs and easily identify the cost drivers and optimize processes to reduce costs. For example, if a particular component is driving up costs, companies can simply run an analysis of the data and identify ways to reduce the cost of that component or replace it with a lower-cost alternative.
According to Parna Ghosh,Vice President and Group CIO, UNO MINDA Group, “The digitization of cost cards greatly benefits our organization, bringing standardization, centralization, and invaluable visibility. Consolidating cost and supplier information of all commodities, components, and bought-out parts into a single database empowers us to leverage historical and predictive analysis. In the automotive industry, capturing Tier 2 and Tier 3 data is crucial, and our visibility in these areas is unprecedented. It revolutionizes supplier identification, providing in-depth analysis of cost, manpower, and utility data, including profitability. Automating costing and digitizing cost cards saves 7000 man-hours annually, driving exceptional efficiency and financial gains, surpassing expectations.”
The potential impact
Eliminate sourcing inefficiencies:
It has become increasingly apparent that Automotive Manufacturers and Suppliers need to be strategic about their sourcing processes. Costing process and data standardization allow for better visibility into costs and supplier performance, enabling businesses to improve operational efficiencies. By implementing standardization, automotive businesses can achieve more efficient and accurate sourcing processes, faster supplier identification and selection, and ultimately lower costs.
Let me share an example of the Request for Quotation (RFQ) process. Traditionally, suppliers typically send their quotes via email, which are then manually converted into a standardized format for comparison. However, by implementing a system that enables all suppliers to submit their quotations in one standardized format, real-time negotiations can take place with all historical data readily available. This allows for more insightful negotiations, leading to better outcomes for both parties involved.
Save significant time and manpower in Cost Card Creation:
Another significant challenge faced in the auto industry is the presence of cost cards saved in different files and formats, leading to errors and inconsistencies in cost structures for components, assemblies, and sub-assemblies across the organization over time. Automating the cost card creation process can provide much-needed transparency and accelerate the costing process, freeing up manpower for other important tasks.
A well-known OEM lost more than INR 1 crore due to a cost anomaly in a particular part between two plants, which went undetected until the OEM upgraded their system to a centralized and standardized automated costing platform. By standardizing their entire costing data, including historical records, the OEM was able to identify and address the loss, which would have otherwise gone unnoticed under their legacy system.
Consolidate all estimations in one place:
When all cost estimates are consolidated in one place, it is easier to identify discrepancies and inaccuracies. Having a clear and consistent picture of manufacturing costs helps decision-makers make informed choices about pricing, production volumes, and other key business decisions. This capability enables automakers and suppliers to respond quickly and proactively to changes in the market.
A tier 1 supplier faced difficulties in tracking its manufacturing costs as each department had its own spreadsheet, making it challenging to get an overall picture of its financials. With consolidated and centralized data, the supplier can now easily identify discrepancies and inaccuracies in real-time. So now, if the cost of materials suddenly increases, the supplier can quickly assess the impact on the overall budget and make informed decisions on how to proceed.
Drive Continuous Improvement: Centralizing, standardizing, and consolidating costing data can be a powerful tool to drive continuous improvement for automakers. By tracking cost data over time, manufacturers can evaluate the effectiveness of cost-saving initiatives and identify opportunities for further improvement.
For instance, if the cost of raw materials is consistently increasing, manufacturers can analyze the data to determine if there are alternative suppliers or materials that can be used to reduce costs. This proactive approach can help manufacturers stay ahead of market trends and maintain profitability.
The benefits of cost data standardization are clear, and the risks of not implementing it are too great to ignore. With the right software platform and digital-data-first mindset, automotive manufacturers can better navigate the challenges and secure better profit margins for a more sustainable and prosperous future.
(Disclaimer: Tanmay Rawat is the CTO, Product Architect of Cost it Right Software at Softude. Views are personal.)
