Developing Cost Management in Modular Product Development
Alminoja, Emmi (2023)
2023
Tuotantotalouden DI-ohjelma - Master's Programme in Industrial Engineering and Management
Johtamisen ja talouden tiedekunta - Faculty of Management and Business
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Hyväksymispäivämäärä
2023-05-23
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:tuni-202305225981
https://urn.fi/URN:NBN:fi:tuni-202305225981
Tiivistelmä
Product development has a crucial role in developing competitive advantage. Product development must balance between functionality, quality, and cost according to the customer needs when developing new products. Most of the product cost is committed during product development, and in consequence, cost management during product development is needed to ensure the cost-efficiency of the new products.
The objective of this thesis is to research how to manage the costs of modular products during product development. The research is conducted as interventionist research. The theoretical research of the thesis was conducted as literature research, in which different literature considering cost management, target costing, cost estimation, value engineering, and inter-organisational cost management were studied in the context of product development and modularity. The empirical research of the thesis was conducted as case study, where the theoretical frameworks were applied in real-life context. The researcher had numerous interactions with the people in the case company and participated in the development work.
Cost management in product development consists of different cost management methods, such as target costing, cost estimation, and value engineering. Target costing is a comprehensive cost management method, in which a target cost is set for the product, and target costing activities are established to support target cost achievement. Target costing activities, such as target cost analysis, control, and realisation activities are needed at different phases of product development process to analyse, monitor, and enhance target cost achievement.
Cost estimation is systematic estimation of product cost that can be applied to target costing process to analyse target cost achievement. In the early phases of product development process, it is possible to apply qualitative cost estimation methods that rely on historical cost information, statistical analysis, and expert opinion. Later in the product development process when the information increases, it is possible to apply quantitative cost estimation methods that apply detailed product information related to features, geometry, and manufacturing process of a product.
Value engineering allows the organisation to recognise potential places for cost reduction by considering different means to produce a certain function in a product and their related cost. However, inter-organisational cost management and supplier collaboration are also needed to support target costing activities especially for largely outsourced products to reduce the information asymmetry in the supplier-buyer relationship related to cost information.
Within the literature research and case study conducted in the organisation, a target costing process applying cost estimation methods and cross-functional collaboration was created. The impacts of modularity were also considered since the decision made in the product platform affect the product cost of multiple products.
The results of the case study imply that target costing and overall cost management during product development needs formal processes and continuity. This means that the target cost achievement should be followed throughout the product development process by estimating the product cost and inserting cost control. Different cost estimation methods are needed to analyse product cost according to the available information. Function-based cost estimation can be applied to target cost setting for module variants and module sets during concept design phase, whereas feature-based cost estimation can be applied to conduct detailed cost estimation during product design phase. Target cost control and realisation activities in modular product development should be stablished for both product and module levels, and the suppliers must be involved in target cost realisation activities especially in cases of high information asymmetry.
The objective of this thesis is to research how to manage the costs of modular products during product development. The research is conducted as interventionist research. The theoretical research of the thesis was conducted as literature research, in which different literature considering cost management, target costing, cost estimation, value engineering, and inter-organisational cost management were studied in the context of product development and modularity. The empirical research of the thesis was conducted as case study, where the theoretical frameworks were applied in real-life context. The researcher had numerous interactions with the people in the case company and participated in the development work.
Cost management in product development consists of different cost management methods, such as target costing, cost estimation, and value engineering. Target costing is a comprehensive cost management method, in which a target cost is set for the product, and target costing activities are established to support target cost achievement. Target costing activities, such as target cost analysis, control, and realisation activities are needed at different phases of product development process to analyse, monitor, and enhance target cost achievement.
Cost estimation is systematic estimation of product cost that can be applied to target costing process to analyse target cost achievement. In the early phases of product development process, it is possible to apply qualitative cost estimation methods that rely on historical cost information, statistical analysis, and expert opinion. Later in the product development process when the information increases, it is possible to apply quantitative cost estimation methods that apply detailed product information related to features, geometry, and manufacturing process of a product.
Value engineering allows the organisation to recognise potential places for cost reduction by considering different means to produce a certain function in a product and their related cost. However, inter-organisational cost management and supplier collaboration are also needed to support target costing activities especially for largely outsourced products to reduce the information asymmetry in the supplier-buyer relationship related to cost information.
Within the literature research and case study conducted in the organisation, a target costing process applying cost estimation methods and cross-functional collaboration was created. The impacts of modularity were also considered since the decision made in the product platform affect the product cost of multiple products.
The results of the case study imply that target costing and overall cost management during product development needs formal processes and continuity. This means that the target cost achievement should be followed throughout the product development process by estimating the product cost and inserting cost control. Different cost estimation methods are needed to analyse product cost according to the available information. Function-based cost estimation can be applied to target cost setting for module variants and module sets during concept design phase, whereas feature-based cost estimation can be applied to conduct detailed cost estimation during product design phase. Target cost control and realisation activities in modular product development should be stablished for both product and module levels, and the suppliers must be involved in target cost realisation activities especially in cases of high information asymmetry.