IBM, with 2013 revenues exceeding 99 billion, is the largest technology and consulting employer in the world with more than 400,000 employees serving clients in 170 countries. The company offers a wide range of technology and consulting services; a broad portfolio of middleware for collaboration, predictive analytics, software development and systems management. IBM also manufactures and markets the world's most advanced servers and supercomputers.
The IBM cost estimating team is made up of approximately 50 estimators worldwide, supporting all IBM computer hardware divisions.
The estimating team's mission is to provide:
- Aggressive yet achievable cost estimates for IBM and its competitors' products.
- Comparisons & analysis of IBM costs to competitors' costs.
- Support to Development Engineering (DE), Brand Cost Management (BCM) and World Wide Procurement (WWP) in an effort to deliver the most competitively priced products to the business.
IBM was in the midst of a massive, ongoing transformation of its supply chain, which included product design, component sourcing, and manufacturing. As a key component of that effort, IBM determined that it needed a way for their procurement organization implement uniform and predictable costing strategies as a means of comparing manufacturing costs on a global basis.
The estimating team determined that in order to accomplish this task, they needed to replace their homegrown Procurement Item Cost Estimating Software (PICES), developed in the 80's with one that could be supported by a 3rd party software developer. This required cost estimating software solution that was user friendly, had windows-like functionality, and would enable them to easily modify and add to their existing cost data in order to accommodate future growth.
After an extensive search of cost estimating solutions, IBM selected the Costimator product cost management software because it was customizable, included industry validated manufacturing data and best fit their overall needs and requirements.
How Costimator Helped
IBM found the Costimator product cost management software to be easy-to-use, even by users that have little to no manufacturing experience, and contains thousands of industry validated cost models and time standards to support the cost estimating of numerous commodity groups, including machining, casting, forging, fabrication, forming, welding, molding, finishing, electronics, assembly and more. The estimating software also comes loaded with labor rates for over 2 dozen countries. This data, combined with IBM's pre-existing data, provided the company with the ultimate cost management solution.
John Kagan, PC Cost Management, Manager, IBM, noted, "Costimator provides labor rates, material rates, and material costs that are resident within the software. The estimating software is used to validate certain times and costs associated with production. It is also used to evaluate engineering changes to identify how they can impact and affect cost and be able to account for changes and provide documented justification".
After receiving a "should cost" estimate from Costimator, IBM purchasing agents are able to use the information to set realistic target prices for formulating and sending out RFQs to their suppliers. The end result is a more efficient and cost-effective RFQ process and ultimately, lower purchase part costs. Kagan adds that the estimates from Costimator give their purchasing team cost benchmarks to help negotiate with our suppliers. Plus, we can compare whether it's better to go with multiple suppliers or to consolidate vertically with one supplier. We can also evaluate functional or design differences to determine whether one design might be better than another."
Costimator has become an integral part of IBM's procurement process due to its customizable functions and features. It has enabled the company to:
Establish target or "should cost".
- Facilitate procurement organization
Provide support in supplier negotiations.
- Through quantifiable, documented explanations of estimates.
Identify Cost Reduction Opportunities/Savings/Avoidance.
- Development Engineering – design/function opportunities.
- Procurement - acquisition opportunities
Provide "what if" cost estimates.
- Enable Development Engineering to incorporate costs into Early Manufacturing Involvement (EMI) activities.
Generate Competitor's Costs
- Enables Development Engineering to better understand competition
Kagan estimated that in the first year and a half of using Costimator, IBM has saved "tens of millions of dollars".