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10 development steps on how Pierer Mobility proceeded with the introduction of cost engineering

 

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The most important development steps and lessons learned in the implementation of cost engineering at Pierer Mobility AG.

About Pierer Mobility

Pierer Mobility is the largest manufacturer of motorbikes in Europe and is based in Austria. The plants are located in China, India and Austria. It has expanded its portfolio from the original off-road sector and also offers motorbikes for the road, which have to fulfil more complex requirements. The number of motorbikes sold in 2022 was around 400,000. 

With the 5 brands with which the customer portfolio is served, they build around 200 different models every year.

Exterior view of KTM headquarters with its signature red and black facade, showcasing the company's innovation in motorcycle manufacturing.

Compared to the automotive industry with high unit numbers per model, the range at Pierer Mobility varies from very low to very high unit numbers. Another important point is that they launch new models on the market every year - similar to the sporting goods industry.

This means that all vehicles are revised every year. This already poses the first challenge for cost engineering: "We try to create uniformity via platforms and modular systems, but our unit numbers can be between 2,000 and 100,000." explains Mr Gumpinger about the company's individual starting position.

Pierer Mobility AG brand overview showing logos of KTM, Husqvarna Motorcycles, GASGAS, MV Agusta, and CFMOTO, representing the group's mobility brands.

The initial situation

Cost engineering was introduced at Pierer Mobility four years ago with the aim of providing support and advice to all departments. Together with a consulting company, the purchasing spend was initially analysed and evaluated. 

In the process, an extensive database of should-costing calculations was built up and the employees' level of knowledge was increased. "Especially at the beginning, when a company introduces cost engineering in the area of Should Costing, an experienced employee is the key to success."

Right at the beginning, Mr Gumpinger points out a major change that occurred between the original plan and the actual implementation:

Cost Engineering was intended to be a support function for all departments. In the meantime, Cost Engineering is not "just" a support function in some cases, but has even taken over the lead.

Vice President Strategic Supply Chain Management, KTM Jürgen Gumpinger

10 development steps on how Pierer Mobility proceeded with the introduction of cost engineering:

Mr. Gumpinger explains "It is relatively easy to develop the processes for Should Costing, Target Costing and What-If Analysis. Implementing and establishing these was the biggest challenge." The lessons learned by Pierer Mobility AG along the way are summarized below:

1

We started with purchasing because we can show cost effects more quickly here. When Should Costing is used in negotiations and developed further with suppliers, you can quickly see the effects on spend. In addition, it was a great advantage for the purchasers to receive support and thus benefit from the objectification of the negotiations.
"That's why the change in purchasing was very easy and quick: because people saw it as a great help."

2

Once cost engineering was well established in purchasing, we continued where you can achieve the most, but where it takes the longest: in development and product management. We were faced with the challenge that the mindset in engineering and product management was not as well-prepared, and it resulted in a major change.

3

We created the right framework conditions in advance: We used supporting collaboration tools such as Jira to achieve targeted collaboration. We made the necessary preparations to be able to store everything in a data lake later on. This unites the various systems such as SAP or Microsoft DevOps and allows us to perform data mining.

4

In product management, we started with the simplest configurations in order to quickly create initial calculations for complete vehicles and to be able to calculate the business case. After all, no product should enter development without a business case.

5

Once the business case has been calculated, it is converted into target costing: the targets are derived from the business case from assembly level down to component level. The data statuses are regularly evaluated in what-if analyses, depending on the maturity level of the designs. Simulations are used to determine where there is potential for improvement.

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6

If an award is made, it is measured a) how well the targets were achieved and b) how accurate the estimate was at the beginning. It is particularly important to always take into account the levels of rigour and maturity, depending on the progress of the project. "It is important to check the parts lists for completeness. The errors caused by incorrect calculations are often smaller than if a component has been forgotten in a bill of materials."

7

The interfaces to the specialist departments were limited as a large amount of data was generated. A centralised "Project Management Task Tracking" is used to track all activities carried out with the purchasing or development departments.

8

Making the discrepancy between greenfield and brownfield measurable: The quality measure of a commodity is evaluated using the so-called fitness indicator. The discrepancy between the value of brownfield (at the supplier) and greenfield helps Pierer Mobility AG to assess: "Do we have good suppliers with the right facilities to achieve the greenfield prices?"

9

Software for automation, as the pressure to manage costing has increased enormously:

  • The number of calculations has increased rapidly with the expansion of cost engineering from purchasing to development and product management. Originally, cost engineering was mainly active in Should Costing in purchasing. Due to the expansion and involvement in all development projects for all existing vehicles, the number of calculations is enormous.

  • Calculating components has become a very repetitive task, as our vehicles have many similarities.

  • A lot of knowledge has been generated in the data pool, which should continue to be utilised.

10

Correctly assess the requirements of a cost engineer: The profile of the cost engineer has changed a great deal. Skills for automation, data analysis and data evaluation are required. "The cost engineer no longer calculates much. They evaluate and advise the purchasing department. They help answer questions such as: Do we need to look for new suppliers? Who is the right supplier because they have the right system? We call this moving from greenfield to brownfield."

Listen to the full case study.

Listen to the webinar where expert Jürgen Gumpinger gives more insights into where does data come from, how it is visualized and made available to other departments?

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