Some companies feel the need to apply a product contingency to product or project costs to allow for uncertainty and variations that occur during engineering and production. By working differently, product contingency will not be required, providing more visibility of genuine costs.
Problems:
Product contingency masks the underlying problem of inaccuracy and lack of repeatability. Contingencies add costs to products arbitrarily, making it difficult for sales teams to price competitively. The practice sends out a very negative message to staff responsible for product definitions and sales.
Solution:
Create a product standard reference library. Ensuring that the standards are complete, accurate and contain all the data required by stakeholders. Depending upon product complexity, it is very likely that the product should be created using the standardisation principles.
Use standard costs, not actual costs. Verify the cost of each component produced making adjustments when variation does occur.
Advantages from different perspectives
Opportunity to receive more competitive quotations
Accurate product costs
No need for contingencies
More opportunity to bid competitively
Better margin control
Accurate product costs
No need for contingencies
Better margin control
Accurate product costs
No need for contingencies
More opportunity to bid competitively
Better visibility of cost during product design involvement
Better visibility of cost during production
Further help and assistance
Gatehouse Design are specialists in product standardisation, product configuration and design automation. We can help companies develop highly effective product strategies, maximising profitability, productivity and customer satisfaction. We can help you remove the need for product contingency and improve the efficiency of your business. Please contact us to discuss any product design related issues that you may have.
Peter Slee-Smith founded Gatehouse Design in 2012, a Chartered Mechanical Engineer with more than 30 years experience in industrial design. Peter qualified with a Masters Degree and has held senior positions in many leading engineering and product manufacturing companies. He is passionate about product design efficiency and has written many articles on the subject. Based in Littleport just outside Ely in Cambridgeshire, Gatehouse Design specialises in product standardisation, configuration and design automation.
