How to keep product costs under control during the product development phase

Keeping the cost of a product under control at the development stage is obviously a primary concern in any industry. It is a complex process, particularly for highly engineered products with different hierarchical levels in their bills of materials.

During the engineering process, the items on a bill of materials may be revised or replaced multiple times. Engineering modifications have an inevitable impact on the cost of individual assemblies as well as the cost of the finished product itself.

Furthermore, an item required by engineering might be produced by different manufacturers or purchased from different suppliers: the cost may vary, even though the items are identical.

The difficulty increases at times of financial instability, when suppliers tend to revise their price lists fairly frequently. If the cost of supplies varies, production costs for the same product may change significantly, even over the course of a few months.

For these and many other reasons, using spreadsheets to keep the cost of an item under control during development is not recommended. There are limitations when it comes to displaying the product’s current cost, and keeping track of how it has varied over time.

Businesses using the Missoun platform enjoy full visibility and control over their product costs during development, thanks to management functions for items, suppliers, materials and the relations between them. Engineering items are associated directly with materials purchased from suppliers. Their cost takes into account the cost of purchased materials, labour costs and any indirect costs (such as duties or taxes). Items manufactured or assembled in house are paired with a bill of materials, so their cost depends on their individual components. Displaying the cost of an item with a paired bill of materials involves performing a “roll-up” operation, i.e. adding together the cost of items at all hierarchical levels, and considering individual quantities.

The video below shows how the cost of an item with a multi-level bill of materials is managed, and how the engineering items it contains are paired with materials and individual cost entries.

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