Commercializing Aftermarket Products
We are fortunate to work with some of the most innovative OEMs, Tier Is/IIs/IIIs and Aftermarket companies in the world and have launched supply chain operations in the US and EU that have included everything from carbon fiber wheels to electric vehicles. Through these experiences we have found that one of the greatest predictors of commercializing aftermarket products success is a company’s handle on all of their finished product costs. Whether you are an entrepreneur launching a sole aftermarket upfit product for the first time at SEMA or an established multinational expanding into a new product segment, our experience is that a company’s ability to thoroughly plan, track and manage finished product costs as early as possible can save valuable time, improve product profitability, and reduce launch risk.
Finished Product Costs
There are many significant costs that add up quickly into a finished product bill of material that often go overlooked. We have found that five of these costs: Engineering, Design & Development Costs, Fixture & Tooling Costs, Inbound Component Costs, Packaging Costs, and Order Fulfillment Costs are often left off initial product bill of materials and as a result are often not budgeted for in the early product planning stages. These product costs add up and can cut deeply into product program profits for high growth aftermarket technology companies. We recommend dedicating time to meet early on with all members of your cross functional team to document all costs that make up your finished product. If you already have detailed bill of material costs you are one step ahead of many companies and should focus your time “scrubbing” your cost numbers, documenting and rolling up non-component cost items like the below with your team.
Below is a list of some of the most overlooked product costs leading companies account for early on in the product commercialization process:
Engineering Design & Development Costs
Engineering design and development costs are often a large budgetary item for high growth technology companies in the aftermarket space. Many firms we work with tend to partner with engineering services firms to execute a large majority of product engineering to expedite and reduce the risk of product development. In our experience reputable engineering services firms should be able to provide upfront detailed directional costs to execute engineering, design and development for a program. Also we recommend that Engineering Design & Development Costs be factored into the finished product net present value program budget product costs to determine if investing in the new product is a sounds investment.
Tooling costs can vary widely depending on the manufacturing processes and tooling material types selected. We are a big advocate for high growth technology companies like our customer GSD Systems, a Tier I supplier of natural gas fuel systems, keeping new product and tooling costs as low possible. Prototype tools out of carbon fiber for plastic parts and zinc tools for metal stampings allow companies to conserve valuable cash to invest in other company growth initiatives. As volumes increase companies can invest in higher volume higher cost tools to fill market demand. Similar to Engineering Design & Development Costs, Tooling Costs should be factored into the finished product net present value program budget product costs.
Inbound Component Costs
Inbound component costs are often overlooked and are highly dependent on where the components are shipping from and to. Thus is it important early in the product commercialization planning process to document budgetary numbers as a best practice. In our experience, a best practice for inbound logistics costs should range from 3-4% of total bill of material costs is a conservative best practice for components shipping from and to destinations within the continental United States.
Packaging costs often take on several overlooked forms and better clarity is usually attained after team value stream mapping. Product packaging costs often include bulk pallet and packaging to distributors and individual store shelf and/or end customer finished product packaging.
Order Fulfillment Costs
Order fulfillment costs depending on how your supply chain is structured these costs could be made of one external service fee to one supply partner or a complex array of internal costs including warehousing, picking, packing, and shipping. All of these costs should be included into your detailed finished product cost roll-up so that a proper delivered finished product cost can be determined and product profitability accurately calculated.
We are strong advocates of visual cost management tools leveraging the above cost drivers. We find assembling a one page “Product Cost Dashboard” to establish an initial baseline budget to ensure costs and profit margins are accurately tracked generates the best product commercialization results. Whether launching a bespoke car program or low volume alternative powertrain system we hope you find these planning steps helpful in managing your costs before and after launch!