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Monday, 24 October 2011

Why the Aerospace Industry Need to Use 'Should Costing'
Oct 24, 2011

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.
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