A couple of cases of cost engineers that have been laid off from their respective companies due to the current Covid crisis have reached us at SOCE. While we understand that is the type of decision that nobody wants to make, and knowing that cost engineering is typically part of the company SG&A, well, seems like a suitable decision at the time as the function is not critical and the production process will not be affected. However, cost engineers may save higher costs by identifying cost gaps and supporting in pursuing new businesses at the right prices, so perhaps the company might save that salary, but may not save much more if we cost engineers were kept doing our job. Our problem is, in many cases, the difficulty to prove our contribution in a measurable way.
For instance, cost engineers have, or should have, a role in:
- Sales:
- BOM should cost calculation
- Customer price breakdown completion and requirements
- Plant manufacturing cost calculation for new processes
- Product Development:
- Cost variation between different designs or architectures
- Cost impact of engineering changes
- Cost estimation of different manufacturing processes, and selection of best process
- Competitive cost analysis
- Purchasing:
- BOM target setting and should cost calculation
- Supplier Price breakdown analysis
- Price negotiation support with potential suppliers
- Technical comparison of quotes received
- Price Increase justification
- Plant Manufacturing:
- Internal should cost vs real costs, identification of wastes in the process and hidden factory
- Fast cost calculation of process changes
- Cost calculation of future processes
Etc, etc…
Above are the main possible areas where cost engineering expertise can help, but how can we put numbers to these “savings”? there are for sure cost avoidances, potential savings calculations, and quick responses to otherwise lengthy processes (normally from Finance) for internal costings. For buyers, for example, it is easy to measure their savings when a price has been reduced from X to Y, but cost engineers might just say that we helped to get there. What would have been the outcome of the negotiation without cost engineering support? No one knows! Or what if we hadn’t won that business because we didn’t choose the best design-to-cost BOM or manufacturing process?
One way to report performance is with parameters like identified potential savings, cost avoidances (for example a price increase request that we ruled out), support given in certain negotiation savings, etc. On the other hand, reporting the potential savings observed might be a double-edge sword: good if saving (or part of them) are materialized, or bad if the accomplishment is minimum, perhaps because it did not have a proper follow up, but it could also be claimed to a poor calculation of the savings.
It is my opinion that experience, management support, and the recognition from the supported departments, are the key elements to maintain a recognized but also a live, motivated, and results-oriented cost engineering team.
What is your case and opinion, how should cost engineers report their contribution to the company savings or results?