Cost Planning for the product life cycle looking for help on questions 4& 5 but
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Cost Planning for the product life cycle
looking for help on questions 4& 5 but would appreciate help on other questions (2,3,6&7) as well.
Chapter 13: Cost Planning for the Product-Life Cycle Allegro Automotive The automotive industry has been beset with various challenges and Allegro Automotive(AA) headquartered in Italy was experiencing the same impact on its line of electric vehi with product development, cost efficiency, materials purchasing markets. In 2017, these problems caused the worst sales slump in decades and the luxury car maker lost money for the first time in history. Since then, AA has streamlined the core business, reduced parts and system complexity and established simultaneous engineering programs with suppliers. cles. AA struggled and problems in adapting to changing In their search for additional market share, new segments, and new niches, AA started developing a range of new products. New product introductions included a variety of vehicles, most of these being electric. Perhaps the largest and most radical of AA's new projects was the Correre. In 2017, AA announced that it would build its first passenger vehicle-manufacturing facility in the United States. The decision emphasized the company's globalization strategy and desire to move closer to its customers and markets. The United States recently enacted legislation which provided significant tax benefits for the development of alternative fuel vehicles as part of the Make America Great Again Tax Act of 2017 AA used function groups with representatives from every area of the company (marketing, development, engineering, purchasing, production and controlling) to design the vehicle and production systems. A modular construction process was used to product the Correre. First-tier suppliers provided systems rather than individual parts or components for production of approximately 65,000 vehicles annually The Correre Project Phases The Correre moved from concept to production in a relatively short period of time. The first phase, the concept phase was initiated in 2016. The concept phase resulted in a feasibility study that was approved by the board. Following board approval, the project realization phase began in 2017, with production commencing shortly after. Key elements of the various phases are described next. Concept Phase Team members compared the existing production line with various market segments to discover opportunities for new vehicle introductions. The analysis revealed opportunities in the rapidly expanding luxury sedan area that was dominated by Tesla, Lexus and Mercedes-Benz. Market research was conducted to estimate potential worldwide sales opportunities for a high-end sedan. A rough estimate was developed that included materials, labor, overhead and one-time development and project costs. Projected cash flows were analyzed over a 10-year period using net-present value (NPV) analysis to acquire project approval from the board of directors. The sensitivity of the NPV was analyzedExplanation / Answer
Allegro Automotive: Line of electric vehicles
Issues during: Product development; cost efficiency; materials purchasing & problems - simultaneous engineering programs with suppliers (Inventory management)
2. AA has brought in Correre for the luxury sedan market. This sedan in the alternate fuel segment space gets tax breaks in markets with high demand for luxury sedans. The organization has broadened its manufacturing base to move beyond Italy. The new manufacturing plant will be in United States. The strategy is to keep the cost high in comparison to the competition but the consumer should be willing to pay for the quality on offer. Suppliers are working on systems rather than units. The facilities for system production are that of AA. Suppliers are thus working with the organization even in systems production. This brings in quality while also streamlining suppies and inventory management.
3. Correre Project links with the AA project for market coverage because the decision to launch a luxury sedan is to increase its reach in the segment that has space for more. A luxury sedan with alternative fuel systems will bring in profits from the alternative fuels segment and the luxury sedan space.
4. Develop an importance index for each component
Relative Importance Index = w / AN
w is the value opted for by the one taking the survey; N is the total number of respondents; n is the number of respondents who have opted for that value; A is the highest weight
This can be prepared from the Quality Function Assessment Table and Table 1.The Chassis, transmission, air conditioner, electrical and other systems contribute to the attributes that matter to the consumer - economy, styling, performance; safety, comfort, & convenience.
Relative importance values for the five factors safety; comfort and convenience; economy; styling; and, performance are 28%, 24, 2, 12, 34.
For groups of compenents the importance index
Categories
Chassis
Transmission
Air Conditioner
Electrical System
Other
Total
Safety
0.28*0.3 =0.084
0.28*0.1 =0.028
0.28*0.1 = 0.028
0.28*0.5 = 0.14
0.28
Comfort & Convenience
0.24*0.3 =0.072
0.24*0.1 = 0.024
0.24*0.1 = 0.024
0.24*0.5 = 0.12
0.24
Economy
0.02*0.2=0.004
0.02*0.2=0.004
0.02*0.1=0.002
0.02*0.1=0.002
0.02*0.4=0.008
0.02
Styling
0.12*0.1=0.012
0.12*0.9=0.108
0.12
Performance
0.34*0.3=0.102
0.34*0.2=0.068
0.34*0.1=0.034
0.34*0.4=0.136
0.34
Total
0.274
0.136
0.026
0.088
0.512
5. Value Index for Correre
Change in value of the product from concept phase to production & profitability
Following factors contribute to the value of the product:
Supply Chain; Design – Comfort & Convenience, Styling; and, Manufacturing – Safety, Economy, and, Performance
Table 2 gives the target cost for these groups. If the cost changes for any of these groups, the value will change for the group as a ratio of the present value to the earlier one.
Target Costing can be done by managing these groups and the organization can decide upon the group that it wants to emphasize on in Correre.
An index number formed from the ratio of aggregate values in the given period to the aggregate values in the base period. Strictly speaking this is not an index number as ordinarily understood but a value relative
6. Suppliers are a significant part of the target costing process. Correrre was not developed using target costing but the attempt is to keep the cost higher than that of competitors but when it comes to product development rather than components, function groups were identified together with target cost estimates. Suppliers use AA's tooling and supply systems that combine these components. Suppliers work on function groups. Cost estimates were produced for these function groups by arriving at the total cost for the system formed from the components.
Categories
Chassis
Transmission
Air Conditioner
Electrical System
Other
Total
Safety
0.28*0.3 =0.084
0.28*0.1 =0.028
0.28*0.1 = 0.028
0.28*0.5 = 0.14
0.28
Comfort & Convenience
0.24*0.3 =0.072
0.24*0.1 = 0.024
0.24*0.1 = 0.024
0.24*0.5 = 0.12
0.24
Economy
0.02*0.2=0.004
0.02*0.2=0.004
0.02*0.1=0.002
0.02*0.1=0.002
0.02*0.4=0.008
0.02
Styling
0.12*0.1=0.012
0.12*0.9=0.108
0.12
Performance
0.34*0.3=0.102
0.34*0.2=0.068
0.34*0.1=0.034
0.34*0.4=0.136
0.34
Total
0.274
0.136
0.026
0.088
0.512