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Eric Hiller shares an article on the top mistakes made in product cost management and design to value. 

Product cost management (PCM) and design-to-value (DtV) are two areas in companies capable of delivering the greatest of impact, but are sadly prone to the biggest blunders by leadership.

Eric A. Hiller, the managing partner of Hiller Associates and a specialist in product development and procurement, has unveiled some of the crucial errors that even the elite executives tend to commit in their PCM and DtV journeys.

Trying to save one’s way to growth

As great as product cost management and some of its sub disciplines like should-costing are at increasing your profit, but they will not grow your top line. To do that you’re going to need to focus on design-to-value. Make sure that you understand both the benefits and the limitations of these techniques.

Not understanding the massive leverage of COGS savings on margin

Cost of goods sold (COGS) is almost always the largest expense on the income statement of a product company. Often it is 70 to 90% of each dollar of revenue. People think of cost reductions in terms of big percentages (e.g. reducing product cost by 50%). That is one of the things that often scares people off from attempting such a transformation period, however you do not need to save massive percentages on cost of goods sold to meaningfully impact the bottom line People forget that margins at product companies are often thin, often less than 10%.

 

Key points covered include:

  • Cost of goods sold (COGS)
  • Cost avoidance
  • Under investing

 

Read the full article, Eric A. Hiller Reviews Top Mistakes Made by Executive Champions in Product Cost Management and DtV, on Medium. 

 

 

Eric Hiller shares how his experience as a new father reminds him of how one has to adjust and adapt using knowledge learned from lean manufacturing and agile product development.

Coronavirus has changed a lot of things in America—especially in urban areas, where there are heightened precautions. It is even more chaotic when you have your first newborn baby, like my wife and me.

Babies are very different from manufacturing floors; however, there are certain processes that must be repeated over and over. Caring for newborns is a good example of how one has to adjust in a rapidly changing customer demand environment—the “customer” being the baby, of course.

Here are some ways that we can apply what we know from lean manufacturing and agile product development to being new parents.

  1. Understand the customer’s needs and design your product and process accordingly

Excited relatives and friends are showering you with gifts, but you may be confused about what you actually need. The truth is: Less than you think, but how do you know what? Answer: with good product management. Consider the use cases that your newborn has: he eats, he sleeps, he produces copious dirty diapers, and he needs love and comfort. That’s about it.

A useful technique to understand what you really need is by observing a customer proxy in situ. Before your baby is born, ask to visit a friend’s baby for a few hours (virtually during the quarantine). They will love the company and your help. After research, write a use case for the customer, or make a value-stream map. Document the capital, consumables, and info you need to help the customer accomplish their goals.

 

Points of connection include:

  • Product modularity
  • Agile meal planning
  • Digital Dashboarding

 

Read the full article, Bringing up Baby, the Lean and Agile Way, on IndustryWeek.com.

 

 

Eric Hiller exposes the biggest blunders leaders make when it comes to product cost management and design to value. 

Product cost management (PCM) and design-to-value (DtV) are two areas in companies capable of delivering the greatest of impact, but are sadly prone to the biggest blunders by leadership.

Trying to save one’s way to growth

As great as product cost management and some of its sub disciplines like should-costing are at increasing your profit, but they will not grow your top line. To do that you’re going to need to focus on design-to-value. Make sure that you understand both the benefits and the limitations of these techniques.

Not understanding the massive leverage of COGS savings on margin

Cost of goods sold (COGS) is almost always the largest expense on the income statement of a product company. Often it is 70 to 90% of each dollar of revenue. People think of cost reductions in terms of big percentages (e.g. reducing product cost by 50%). That is one of the things that often scares people off from attempting such a transformation period, however you do not need to save massive percentages on cost of goods sold to meaningfully impact the bottom line People forget that margins at product companies are often thin, often less than 10%. Therefore, the leverage is huge. For example, if a company had a COGS of 80% and reduced it to 79%, they only saved 1% as a percent of sales. But, if the margin was 5%, reducing COGS of 1% equates to a 20% increase in margin. Executives might think design-to-value or product cost management transformations are “too expensive.” They are; they are too expensive NOT to do.

 

Key points in this article include:

  • Focusing on short term savings without a plan for long term Product Cost management 
  • Not believing cost avoidance is more important than cost savings
  • Thinking that a tool is the solution, not simply an enabler
  • Under investing in a separate team and capability building for the organization

 

Read the full article, The biggest mistakes executives make in design-to-value and product cost management, on Medium.com.

 

 

Eric Hiller recently published the first article in a series for Industry Week. This week, the article  focuses on how an executive (and other people who are not cost experts) can understand what the cost management team is communicating.

We have all been in a meeting where miscommunication happens. One of the biggest challenges when dealing with analytics in business is that the more powerful the analytics, the harder it is to explain to other people not involved directly in the analyzing. Exactly how the analytics works and why the results should be trusted by our colleagues and leadership is a challenge. The same is true with product (or service) cost management—specifically, when using what are commonly called “should-cost models”, (models for estimating the cost of a product or service).

A big part of the communication problem is that there is not just one type of cost model. Cost management is a broad field with a variety of methodologies to address the almost infinite world of situations for which one wants to know the cost of manufacture or service delivery. Even if an executive has some understanding of one particular cost-modeling technique, it can often be confusing when the analytics team uses different technique.

 

Questions answered in this article include:

  • At what level of the BoM (bill and material) or WBS (work breakdown structure) is the object or service being costed?
  • Does the cost model focus on the object or service, or does it focus on the process?
  • What analytical approach is used in the cost model? 

 

Read the full article, 5 Questions for Better Cost Management Discussions, on the Industry Week website. 

 

 

Eric Hiller takes a look at the effects of the COVID-19 pandemic on higher education and discusses the pros and cons of online learning. 

 

“With the advent of our unfriendly visitor from Wuhan, the COVID-19 virus, a lot of things have changed. Higher education has been particularly hard hit. I could not find a complete list of colleges and universities in the USA that were closed, but one can get a pretty good qualitative sense of the effect, for example:

  • Unesco shows an excellent map of school closures. Many countries have shut down schools nationwide! ‘According to UNESCO monitoring, over 100 countries have implemented nationwide closures, impacting over half of the world’s student population.’ Only the USA, Canada, Brazil, Russia, and Indonesia seem to have localized closures, although some countries do have universities open. 
  • Anecdotally, some of the most prestigious Ivy Leaguers, such as Harvard and Princeton have closed campuses, and other powerful state schools, such UC Berkeley, have campus technically open, but all instruction is online.
  • Local lists of closed colleges and universities overflow.
  • The dire state of higher ed and short-term effect of COVID-19

The short-term effect of the Chinese CoronaVirus on colleges could be devastating, i.e. this could be the coop de grace that forces schools on the bubble into the grave.” 

 

The article explores:

  • The four basic tools used for learning
  • Where the online model doesn’t work
  • Why COVID-19 is a long-term higher ed forcing function

 

Read the full article/release, Eric Hiller Examines Covid 19 Effect on Higher Education, on The Express Wire. 

 

 

Eric Hiller provides a short introductory article and a link to a forthcoming webinar on Thursday, May 28, 2020, that explains how to keep a supply chain up and running during COVID-19 and into the future. 

The old world…

So, you had a supply chain, and you thought it was pretty “optimized.”

Yeah, you could improve it here and there, but you had wrung out 95%+ of the addressable waste.

To really make progress, you would need to make MAJOR changes (new suppliers, locations, etc.), but there just is always other stuff to do.

The new world…

Then Corona happens!!!!

Your tidy and luxurious platform is now burning.

Now you have no choice but to DO SOMETHING different.

Cost was really important and you thought delivery and quality were assured.

Now delivery is a huge problem (maybe quality too.)

The future world…

What do you do short term?  What do you set up in the future to stop this from happening again?

 

Read the article, Corona Supply Chain Blues — what to do about cost, when delivery is a problem, and find links to the webinar on the Hiller and Associates website.

 

 

Eric Hiller unrolls a few facts behind the need to hoard toilet paper (TP) as he shares his knowledge on the supply chain in this article recently published on MarketWatch.

One of the bizarre phenomena that we have been experiencing in the United States during the visit of our unfriendly visitor from Wuhan, the SARS-COV-2 virus which causes COVID-19 disease, is the strange behavior of people to irrationally hoard toilet paper (TP). I admit, this is one thing that I did not expect, nor did I expect it to go on for so long. I told my wife two to three weeks ago that this would not be a problem, because of the reasons that will be discussed in this article. But I admit, so far this problem has not resolved itself.

I feel pretty competent to talk on this subject, not only because I know the product so intimately, but also because I spent a summer at the East River plant of Procter & Gamble in Green Bay, Wisconsin making TP. I was interning as an undergraduate as a process engineer implementing statistical process control and machine center lining (exciting stuff… yes, I know). It just so happened that I was working on the “converting” floor for Charmin, Charmin Ultra, and Banner toilet paper. This, where you take finished rolls, that is the size the Jolly Green Giant must use (maybe 12 feet tall and 8 feet in diameter, weighing a couple of thousand pounds), and progressively unroll and cut them up until they end up in cases shipping to your friendly grocery store or another outlet.

So, when it comes to TP, I know my… stuff.

 

Facts included in this article:

  • The US supply chain
  • Why people are hoarding TP
  • The cure for TP shortage

 

Read the full article, Three Sheets to the Wind, on the MarketWatch website. 

 

 

Eric Hiller’s company blog takes a look at the strategy and growth probability of the Ride-hail market from the perspective of the Lyft CEO.

Summary for Lyft CEO

Ride-hail is not going away, but it must to get profitable.   You can try to ‘grow to profitability’, but as we have learned in the past, that is a risky proposition.

Uber is expanding, but it is already bigger than Lyft.   Is that strategy profitable, and if it is, is there enough room for two players in it.  Simultaneously, the path to profitability is getting harder with cities pushing back on Lyft and Uber, and as Lyft and Uber attract new customers, they may be less profitable riders.   Consider another option: an alternative targeted and differentiated strategy:

  • Lyft should double-down on a long-term strategy of letting Uber attempt to own the market… but in reality, building the interstate for Lyft to toll

  • Continue to build cultural allegiance driver, rider, and city — which will differentiate and win in a commodity market in the longer-term, as Lyft captures share in an increasingly regulated environment

  • Follow to profitable geographies

  • Long term invest in autonomous public transport, leveraging massive experience with app / software and routing vehicles to individuals.

 

Read the full article, Lyft vs Uber – What if You Are Driving Lyft as a Company?, on the Hiller Associates website. 

 

Umbrex is pleased to welcome Eric Hiller to our community.  Eric is the managing partner of Hiller Associates, the leading consulting firm specializing in product cost management (PCM), should-cost, design-to-value and software product management.

He is a former McKinsey & Company engagement manager and operations expert. Before McKinsey, Mr. Hiller was the co-founder and founding CEO of two high technology start-ups: aPriori (a PCM software platform) and TADA.today. Before aPriori & TADA, he worked in product development and manufacturing at Ford Motor Co., John Deere, and Procter & Gamble.

Mr. Hiller is the author of the PCM blog www.ProductProfitAndRisk.com. He holds an MBA from the Harvard Business School and a master’s and bachelor’s degree in mechanical engineering from the University of Illinois Urbana-Champaign.

In this two-part series, Eric Arno Hiller interviews Spend Matters founder, Jason Busch, about the growth of the market of Product Cost Management software and the state of the art today.

 

A lot has happened in the world of procurement software in the last 20 years. Purchasing has added a lot of new tools to what was mostly a relationship-focused discipline. These developments include:

  1. Data-rich environments of spreadsheets, MRP and ERP systems
  2. Supply chain management and supplier relationship management systems
  3. Online auctions
  4. Spend analytics tools/product cost management (PCM) software

Although the relationship side of the business is just as important as ever (some might say more important), purchasing analytics are here to stay, and they continue to become more prevalent in the discipline. The same is true for product cost management tools and their offshoots of service cost management tools. In this series, I am going to discuss the evolution of these tools and the state of the art.

 

Read the first full article, The evolution of product cost management tools and the state of the art, on Hiller Associates’ company blog.