Let's talk about some of the voices that give bad advice and expectations related to product cost management.
In the last post, Do You Hear The Voices?, we talked about the different voices that speak throughout the product life cycle and how they relate to Product Cost Management. Now we’ll talk about some voices give bad advice and expectations.
Hope is Not a Strategy
Organizations have a variety of excuses for why they don’t let the Voice of Reason limit the finance team’s desires for product cost or profit. The same is true for not listening to the Voice of Intent (seriously evaluating alternatives in concept design and costing them), and for having no Voice of Engineering (not doing product cost management in engineering or being lax on cost roll-ups). These voices are replaced by a new voice: the Voice of Hope!
“Hope” — that sounds pretty positive, doesn’t it? However, as Rick Page taught us in his book, if hope is not a strategy for sales, why would a company think it is a good strategy for its Product Cost Management? The difference between a conversation on product cost with the Voices of Reason / Intent / Engineering vs. a conversation with only the Voice of Hope is the difference between a profitable and unprofitable product.
The Voice of Resignation (…or Eeyore)
This brings us to the Voice of Partners and the Market, i.e. your suppliers and factory who have to actually deliver your new product. The supplier or plant will determine the price at which they are willing to sell to you.
People often add pernicious voices to the conversation that are manic depressive opposites. The first is the Voice of Resignation. If you have kids, or if you ever were a kid, you may know this as the Voice of Eeyore. Eeyore is the lovable, but chronically dejected donkey in Winnie the Pooh.This voice says, “I don’t care what your ‘should-cost’ says. This is what the market will sell for, so I guess that I have to buy at that price.”
The Voice of the Bullying (…800 lbs and growing)
The manic brother of the Voice of Resignation is the Voice of Bullying. However, instead of Tigger as the opposite of Eeyore, we have another mascot for this voice — the 800-pound gorilla. After all, Tigger is more of an annoyance than a bully. The Voice of Bullying says: “We’re the 800-pound gorilla customer, and we’ll use our weight to force some cost reductions with the supplier.” Is the price requested reasonable? The 800-pound gorilla doesn’t care, because he needs the price to be what he wants it to be for one of several reasons that are beyond explanation in this post. I plan to discuss the reasons more fully in a subsequent post, but for now we’ll just list them as the following:
- Cost was never targeted properly in the first place (a.k.a. the Voice of Hope was listened to over the Voice of Reason)
- Engineering let things get out of control (a.k.a. the Voice of Sound Cost Engineering was replaced with the Voice of Hope… or apathy)
- The Voice of the Ghost-of-Product-Costs-Past haunts purchasing (a.k.a. the demand for post-launch cost reductions)
So, how do we silence, or better yet, learn from the Voice of Resignation and the Voice of Bullying, while keeping them in control? I’ll leave that for next time.
Check out the Hiller Associates blog on Product Cost Management (www.ProductProfitAndRisk.com)