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Manufacturing Target Cost Reduction Management Software with Modeling & ROI Tracking

Technology Overview

All Manufacturers plan Product Cost Reduction to maintain competitiveness and profit margins. Traditionally, to get an X% Product cost reduction, management just instructs all departments to reduce their budgets by X%. However, this approach creates frustration as the exact knowledge of where is the highest impact cost reduction opportunities for X% is lacking. Our solution offers the scientific approach.

This software uses 100% accurate Kai'zen Target Costing formulas to establish the absolute gap between the Current Product Cost versus its Zero Loss Cost (also known as Ideal or Utopia Cost) for each Product down to the individual Process levels. Unique to Target Costing formulas is the linking of the value-added semi-processed goods of the preceding Process to the next Process through the Value Stream. Hence, losses at the last Process also includess the values lost from semi-processed goods of preceding processes.

The customizable Graphical Overall Equipment Effectiveness (OEE) Analysis methodology helps the individual Process Owners to understand their Process loss structure while the Modeling Function enables them to accurately model the financial impact of each of these losses. Thus a data-driven, factory-wide high-impact Cost Reduction Plan can be made involving all Processes and Support departments. The selected improvement plans are then Tracked for actual ROI progress as well as against the Before-Project Baseline conditions so that Project Teams are not demoralised when conditions beyond their control (eg: sudden surge in energy or material costs etc...) hide the true cost savings of their projects.

Technology Features & Specifications

The Costs and Manaufacturing indices are extracted from the Company's Enterprise Resource Planning (ERP) and Manufacturing Execution System (MES) Systems and loads easily into the software in the form of CSV files. The solution incorporates three advanced Data Analytical Tools. The 100% accurate kai'zen Target Costing formulas reconciled to satisfy accounting expectations, advanced but flexible-use OEE Graphical Loss Analysis plus our proprietary Modeling Algorithms that links Costs with Manufacturing Indices.
The software is also mobile-accessible enabling Improvement Teams to realise the IoT experience of real-time data, modeling and reports via their hand-held devices. It is designed to be compatible with all ERP/MES systems so long as the data can be exported. It also provides digitalised visual real-time TV panel displays for the transparent operations of selected indices (eg: Yields, High Breakdown Areas, Quantity Outputs, etc )

Potential Applications

This software solution can be used by all manufacturing industries for improving the cost competitiveness of any Manufacturer. In-Licenced Collaborators can offer this solution as a module or part of their ERP/MES Offering.

Briefly, our Software can help all types of Manufacturers to pinpoint and measure the financial impact of all possible Lean Manufacturing improvements in the Factory. It separates between the trivial many from the vital few high-ROI improvement areas needing attention. It is driven from bottom-up by the cost-owners and allows management high-level perspective to direct resources to "scratch-where-it-itches". It drives improvements by providing solid 100% accurate cost-data for all factory activities. The software modeling and ROI tracking functions then report all Lean Manufacturing Improvement Projects in costs. 

  1. Promotes a data-driven company-wide Cost Ownership Culture and achieve a scientific way to plan Cost Reduction.
  2. Accurately know Individual Product Costs for Pricing strategies
  3. Accurately know the long-term and short-term potentials for cost reduction in each department and process by comparing their Current Costs vs. the Zero-Loss cost
  4. Provides and accurate ROI measurement Tool that Tracks ROI of Lean Improvement Projects including Lean 6S and Total Productive Maintenance (TPM) / OEE projects.

Market Trends and Opportunities

Currently there are two popular methods for estimating or judging the cost reduction potential of an Improvement Project. they are using the Loss-Cost Matrix (Eg. https://the-lmj.com/2014/09/turning-loss-into-cost/) and Activity-Based Costing (ABC) (Eg. http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Activity%20Based%20Costing%20(ABC).aspx) where it clearly states the limitations in the following words: "ABC will be of limited benefit if the overhead costs are primarily volume related or if the overhead is a small proportion of the overall cost. It is impossible to allocate all overhead costs to specific activities. ... ABC can be more complex to explain to the stakeholders of the costing exercise.Jul 8, 2012 ". Therefore Pricing strategies based on ABC costing might not be always accurate. We can only guess the error margin.

Since ABC is estimated to have a 1/3 penetration rate of Western Manufacturing MNCs, the market for this solution is huge since it is scientific, accurate, cheaper and easier and faster to implement.

Both methods depends very much on the users' judgment and therefore is not consistent nor accurate. While the use of the Cost-Loss Matrix template is free, ABC implementation typically costs an average of US$2M and takes about 2 years to implement.

Therefore there is a market need for an accurate, cheaper and easy-to-implement software solution to help Manufacturers be better informed of Pricing and manage Cost Reduction Activities - especially when almost every manufacturer have dedicated departments that perform this function under various names such as Operation Excellence Department, Lean 6S Department, TPM, Total Quality Management (TQM) Departments.

Customer Benefits

  1. Implementation is fast (within 2- 4 months) , consistent, objective, 100% accurate compared to using "judgment" for current "state of art" and repeatable.
  2. Provides total clarity where amongst the hundreds of possible improvement projects, which ones have high financial-impact
  3. Provides agreed accurate and fair tracking of Improvement Projects' ROI.
  4. Fully customizable and suitable for all types of industries and products.
  5. Software solution works well regardless with detailed data or simple data in the Manufacturing Indices (eg: detailed data of unplanned downtimes)
  6. The Product-by-Product Factory Cost monthly reports are 100% accurate for Pricing strategies at much cheaper cost for those using the two current methods described above.
  7. New Products, Processes and Machines, etc can be added as the Factory acquires or changes Products without need to modify the Software (unlike ABC Software).

Collaborators who in-license the software and integrate it with their ERP / MES solutions will be able to offer a very attractive Costing Module that is not judgment-based but 100% accurate, scientific easy to implement and understand.

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