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Cost Engineering

5 Ways Tset Can Help Cost Engineers Contribute to Business Success in a VUCA World

VUCA goes Cost Engineering, and vice versa!

VUCA (Volatility, Uncertainty, Complexity, Ambiguity) - once only discussed in think tanks, strategy circles and in management - has become a consistently used term over the past ten years.

For many manufacturing companies that are globally networked through supply chains and customer structures, this is part of their daily business. Naturally, the automotive industry is particularly affected. Here - apart from the laws of physics and the rules of mathematics - everything is constantly in flux and in global competition. What CEOs and CFOs often somewhat neglect the strategic importance of cost engineers and their teams in the VUCA world.

Here at Tset, we have identified five factors that make the "current VUCA" particularly challenging, and derived possible measures to successfully meet said challenges.

1. It Can Be Assumed That Trade Restrictions Will Increase Internationally

We are currently experiencing a series of (punitive) tariffs and quota regulations between the USA and Europe, as well as between Europe and China, not to mention sanctions resulting from wars and armed conflicts.

The "classic" response to this is "local-for-local" supply chains, where production and assembly takes place in the appropriate configuration in the respective region. The extent of the "local content" (i.e. the added value at the location) then has an impact on customs (price) or availability (quota), for example. This addresses and mitigates the cost, availability and delivery risk. Such a change in the supply chain is usually associated with cost increases. In order to manage these well, sophisticated negotiation preparation with target/shadow calculations is required - and often with very short lead times.

For new developments, suppliers in different markets need to be verified quickly, and it is the cost engineers who are there to support these processes. Tset offers up-to-date master data for cost factors from the respective markets worldwide. This also allows logistics costs and potential savings to be calculated quickly.

In the early phase of new product development, it is often challenging to maintain an up-to-date bill of materials for cost calculation. If such a list is not yet available in the PLM or ERP system, then it can be created in Tset, and further serve as the basis for calculating costs and CO₂ emissions at various (supplier) locations during development, as well asmanage other customer or supplier-specific additional information.

2. Armed Conflicts and Wars Affect or Disrupt Supply Chains

Examples include the impact of the activities of Houthi militias on global shipping traffic in the Gulf of Aden, or disruptions to supply lines caused by Russia's war against Ukraine. Companies usually respond to this with a dual-source strategy, i.e. parallel suppliers who each have to meet specific requirements and - depending on the situation - can supply different proportions. Professionals rely on a "supply agreement", which may include penalties, escalation levels and obligations to cooperate. This must be negotiated for each specific project/product. Tset can be used to quickly calculate the cost impact of the associated volume changes.

3. The Climate Crisis Is Here to Stay, and So Is the Uncertainty It Brings With It

The topic itself has several aspects that impact manufacturing companies, such as the frequency of natural disasters, the implementation of the EU's Green Deal, the development of the price of CO₂ certificates, the possible consequences of the outcome of the presidential election in the US in November 2024, etc. What we can assume is that material costs will rise in the long term due to CO₂ pricing along the entire value chain (CO₂ certificates for the purchase of raw materials, preliminary products, transportation, in-house production, etc. - none of this is usually transparent for customers).

It is therefore advisable to keep up to date with forecasts and to assume ongoing increases in (several?) calculation scenarios.

A variety of prices can be stored in Tset's master data service; in addition to forecasts, they can also be stored geographically, by form, purchase quantity, expected future prices, as forecast horizons, etc. This "multidimensional master data" allows new/updated knowledge or assumptions to be introduced at will - in scenarios or ad hoc. In addition, products can also be calculated according to cost or CO₂ specifications via a "generic supplier" - and much more. Tset offers extensive array of reference master data, also for emission factors.

The result: a medium-sized cost engineering department can suddenly work like the large OEMs - on a global scale. Companies are then no longer surprised when cost increases occur, but instead are fully prepared and can adapt flexibly.

Greenhouse building and people crossing the bridge

4. Discussions About “Technological Openness” Are Becoming Stronger and More Intense

The best known example of this is the current politically driven discussion about drive systems for vehicles on the road. However, "electromobility vs. combustion engine" is just one example. Different concepts can also be pursued in parallel in mechanical engineering, e.g. with regard to automation. A manufacturer's strategic decision in favour of "technological openness" and the ability to implement multiple concepts, ultimately means a broader product range and increased complexity. As a result, cost engineers must be prepared to calculate new technologies in parallel, and in different production volumes, much more frequently. This brings with it the challenge of keeping the team up to date in several technological areas. Tset can provide up-to-date knowledge and speed up the calculation processes.

5. Customer Decisions Are Becoming More Spontaneous and Erratic

The volatile economy means that private sector investments are less predictable, and this also applies to public sector clients and customers (in some cases for other reasons). Sales figures, equipment, and desired sizes and performance of vehicles and other products - all of these can only be planned at very short notice. For manufacturing companies and suppliers, this means that significantly more calculations have to be made. Lower quantities, a changed call-off structure or a new equipment variant may mean that other production technologies, or perhaps a different supply chain structure, would be more advantageous. Tset makes it possible to work in "instrument flight" instead of "blind flight".

The "current VUCA" appears to be particularly challenging, not only for reasons relating to the industrial cycle, and but it can be assumed that it will continue. VUCA as a "normal state" requires managers and purchasing departments to have their finger on the pulse, with digital tools that map and help manage complexity.

Would you like to know more?

For more information about cost and CO₂ engineering, read our whitepaper: "Carbon reduction in automotive supply chains". Explore the urgency of climate action and business resilience in more detail.

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Whitepaper preview: "Carbon reduction in automotive supply chains"

Author

Jakob Etzel

VP Customer Success

07.08.2024

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