Why the Aerospace Industry Needs to Use 'Should Costing'

Why the Aerospace Industry Needs to Use 'Should Costing'

Should costing is a process, whereby one can determine the cost of the part or product, based on the raw materials used, manufacturing costs and overhead production costs.

The aerospace industry today is a buyer driven market, where reducing product cost and delivery cycle time are critical for aerospace OEMs and their key suppliers to remain competitive. However, these companies produce highly complex products that require long development cycles and are manufactured in low volumes.

Aerospace companies continue to face (and address) challenges in managing product costs over a very long lifecycle of their aircrafts. It is very clear that these companies have to embrace a more concurrent approach to their operational processes and constantly review product costs to identify opportunities for cost reduction.

Since most of the aerospace OEMs source a large percentage of their component from suppliers (commonly 50-70%), this area requires special focus. It is important for OEMs to understand the costs involved in production of a part or a component sourced from an external supplier, as it will enable effective price negotiations with suppliers and also help assess the capability of potential suppliers. Understanding of component costing and measurement systems are aligned with the lean philosphy, and complements value stream organization by driving continous improvement and supporting pull and flow production.

Companies worldwide should aim to identify the major cost drivers of components they design, manufacture and procure, much earlier in the product development cycle. With cost assessments early in the product development process, one can eliminate significant costs prior to production and get quantifiable savings in material, tooling, labor, and overhead, by evaluating alternative designs, processes and sources.

Current costing techniques vary throughout the aerospace industry and include the use of both proprietary and non-proprietary methods. Most companies still retain a traditional cost estimating department that uses experienced individuals backed by large proprietary databases. However, lack of adequate cost information can lead to poor decision making, time consuming redesigns, and high component costs. Zero based costing has been around for quite some time, but the availability of digital engineering models and specialized costing software have significantly enhanced the effectiveness of should costing and analysis.

A well managed should costing and analysis initiative is clearly a critical activity for the aerospace companies, and sets the stage for consistent cost management, that leads to increase in profitability and stakeholder returns.

What is Should Costing?

Should costing is a process, whereby one can determine the cost of the part or product, based on the raw materials used, manufacturing costs and overhead production costs. This can be achieved by analyzing the engineering models to understand the raw material required, defining the manufacturing processes required to deliver the required form features, and calculating the total costs through the use of rate data related to material costs and processing costs. The ultimate goal of any should cost analysis initiative is to provide enough information to enable (depending on the stage) designers to modify raw material or form feature requirements, or enable suppliers to modify manufacturing processes with a view to reduce costs.

Should costing, thus, provides a framework that enables a systematic focus on opportunities to reduce costs right from the conceptualization stage through the production life of the product.



Steady State Execution Flow of Should Cost Estimation

Scope of Should Costing in Aerospace

Aerospace manufacturing has achieved significant productivity improvements over the years, through development of new processes and by performing multiple operations on a single machine. Kaizen (continuous improvement) activities are also widely used in the aerospace industry to increase quality, and throughput, and reduce work-in-progress and setup times.

Proliferation of should costing in product development lifecycle can help aerospace companies accurately estimate the costs associated with developing and producing components and products, and take timely decisions throughout the product development lifecycle. During design stage, it keeps the design engineers aware of movements in product cost and enables them to select most economical designs for manufacturing, improve material utilization, reduce number of features and relax tolerance during new product development. It also helps designers analyze the design and make timely trade-off decisions with respect to cost and functionality.

When the product reaches industrialization, should cost models help to keep sourcing cost low. Cost models empower the purchasing team with knowledge of manufacturing processes, machines used, etc. which helps them effectively negotiate with suppliers. The costing model also provides a basis to seek out the right supplier, by comparing between the actual procurement or manufacturing cost and the cost model; and reconcile differences.

Although various cost estimation software are available in market to perform cost modeling, the core of good should costing solution lies in deep understanding of aerospace manufacturing processes to keep component costs low. While designing a component, companies need to keep production costs as low as possible and at the same time maintain quality. Knowledge and selection of best materials and manufacturing processes is essential to develop accurate should cost models.

Should cost estimates in aerospace industry are based on the mathematical calculation of feed, speed, RPM, IPR, IPM and other inputs such as historical data of process, best practices, raw material rates, work center rates, special process specifications. Our experience in working the aerospace majors for global should costing operations, shows that the should costing team has to have good knowledge of machining factors such as nature of cut, work material, cutting fluid application and capacity of machine tools, particulary for specialized materails like titanuim and inconel, to develop accurate cost models.

Ability to leverage software engineering skills to set up intuitive knowledgebase of data related to machine tools, feed, speeds and MRR, and automate region cost specific templates also plays an important role in accuracy of cost models for global soucring. It helps improve the product quality and reduce costs by eliminating or minimizing trial and error iterations involved in cost modeling processs.

Conclusion

Aerospace companies need take a more holistic approach towards should costing as a tool that can not only help contain costs, but can help provide answers to many questions, such as whether to apply the same manufacturing strategy to a new product or not, or whether to manufacture in-house or outsource to a supplier. It helps define the competitive cost positioning in the market and eventually formulate a cost management strategy of new and existing products. A well managed should costing analysis provides the basis for continuous cost management and waste elimination to achieve cost efficiencies.

Adinarayana Malleboina, is a project lead, Engineering Services at Geometric Limited.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish