Building Profitability from the Design Stage with SAP Product Lifecycle Costing

---

SAP Product Lifecycle Costing: Powering the Next Generation of Cost Management

In an era defined by electrification, raw material volatility, and geopolitical uncertainty, cost planning has once again become a core management priority.

In this series, we explore how companies can elevate cost planning by leveraging SAP—aligned with the product lifecycle.

As the first installment, this article focuses on:

• The Idea / Concept Phase
• The Design / Development Phase

and explains how SAP enables advanced, data-driven cost management at each stage.

---

Why Cost Planning with SAP Matters More Than Ever

Cost planning is not merely about cost control.

Its true essence lies in:

Designing a profit-generating cost structure in the upstream phase,
analyzing actual performance after mass production,
and continuously feeding insights back into development.

This closed-loop cost management model is the foundation of modern cost planning.

However, in many organizations, information remains fragmented:

• Design: BOM managed in Excel
• Procurement: Quotations handled separately
• Manufacturing: Process-based systems
• Finance: Standalone accounting systems

As a result, end-to-end visibility is limited.

SAP’s greatest strength is its ability to integrate these functions into a unified data model.

By connecting design, procurement, manufacturing, finance, and sales, SAP enables a seamless cycle:

Simulation → Agreement → Execution → Performance Analysis → Feedback

This transforms cost management from fragmented control into a strategic management discipline.

---

Product Lifecycle and Cost Planning Framework

This series follows the product lifecycle of Tier-1 automotive suppliers:

1. Idea / Concept
2. Design / Development
3. Industrialization / Pre-Production
4. Production
5. Service / End-of-Life

This article covers Phases 1 and 2.

---

1. Idea / Concept Phase

Overview

In this phase, companies develop new product concepts based on OEM requirements and market trends, and define:

• Target profit margins
• Target costs

At this stage, neither design nor BOM is finalized.

Therefore, cost estimation is based on:

• Similar products and historical data
• Functional and performance requirements
• Modular structure assumptions
• Weight and material models
• Market price reverse calculations

---

Objectives

• Establish: Target Price − Target Profit = Allowable Cost
• Evaluate profitability by vehicle and program
• Visualize new cost structures related to EVs, batteries, and semiconductors

---

How SAP Supports This Phase

1. SAP Product Lifecycle Costing (PLC)

With PLC, companies can build rough cost models at the concept level and conduct early-stage simulations, including:

• Concept A/B comparisons
• Material substitution scenarios
• Make-or-buy analysis
• Future volume simulations

These analyses can be performed quickly and systematically.

2. Profitability Simulation (CO-PA / SAC)

Using SAP Analytics Cloud and Margin Analysis, companies can visualize:

• Program-level profitability
• Profit forecasts by vehicle, region, and customer
• What-if scenarios for exchange rates and material prices

---

Value for Tier-1 Suppliers and OEMs

For Tier-1 Suppliers

• Improved RFQ accuracy
• Shorter quotation lead times
• More reliable bid decisions

For OEMs

• Higher accuracy of cost targets
• Early detection of unprofitable programs
• Profit management from the early development stage

---

2. Design / Development Phase

Overview

In this phase, RFQs, drawings, and specifications are finalized, and close collaboration begins among:

• Engineering
• Procurement
• Manufacturing Engineering

Most of the product’s cost structure is determined here.

Decisions made in this phase largely define long-term profitability.

---

Objectives

• Build-up costing based on BOM × Process × Procurement Price
• Immediate assessment of design change impacts
• Identification of VE/VA opportunities

---

How SAP Supports This Phase

1. Detailed Cost Modeling (PLC)

SAP enables scenario comparisons by:

• Design alternatives
• Materials
• Production locations
• Suppliers

at the RFQ and program levels.

2. Design Change and Cost History Management

Through CAD/PLM integration, SAP tracks:

• Which ECN caused changes
• How much cost was affected

This ensures transparency and smooth cross-functional coordination.

3. Real-Time Procurement Price Integration

Supplier quotations and contract prices are registered in PLC, enabling real-time analysis of cost drivers.

4. Standard Cost Planning (Product Cost Planning)

With integrated Engineering BOM and Manufacturing BOM, SAP supports:

• Multi-level BOM costing
• Make-or-buy consolidation
• Precise standard cost calculation

---

Target vs. Actual Cost Analysis

SAP enables comprehensive analysis, including:

• Visualization of target vs. actual gaps
• VE cost-reduction tracking
• Design change impact tracing
• Version-based comparisons

These insights directly support executive decision-making.

---

Value for Tier-1 Suppliers and OEMs

For Tier-1 Suppliers

The greatest benefit is:

Preventing unprofitable projects at the design stage.

By visualizing material costs, processing costs, depreciation, outsourcing, and losses, suppliers can:

• Assess profitability before order acceptance
• Design profit-oriented manufacturing processes
• Strengthen negotiation power with OEMs

This enables a shift away from “loss after order” business models.

For OEMs

OEMs benefit from:

• Higher accuracy in profit forecasting
• Prevention of unprofitable programs
• Optimized end-to-end product design

---

Conclusion: Profit-Driven Cost Planning with SAP

This article outlined the overall framework of SAP-based cost planning and its application in:

• The Idea / Concept Phase
• The Design / Development Phase

SAP’s greatest strength lies in enabling:

Closed-loop cost management
from concept through mass production and beyond.

As a result:

• Tier-1 suppliers can embed profitability from the design stage
• OEMs can manage program profitability with high precision

This leads to sustainable competitive advantage in the automotive industry.

---

Coming Next

In the next installment, we will explore:

SAP applications in the Industrialization and Pre-Production phases and beyond.

SAP Product Lifecycle Costing for Profit-Driven Manufacturing

We will continue to clarify the full picture of next-generation cost planning powered by SAP.

---

Reference Links

• SAP customer-facing documentation. While some content is slightly outdated, it provides a solid overview of the overall concepts.
  SAP Corporate PPT Template
• Overview of CO-PA, Product Cost Planning, and Actual Costing frameworks
  Product Cost Planning | SAP Help Portal
• Insights from SAP consultants on LinkedIn
  SAP Product Lifecycle Costing on Premise and Cloud Edition and Calculating future Product Profitability
• Official SAP documentation on Product Lifecycle Costing (PLC)
  Product Costing | SAP Product Lifecycle Costing
• Preh case study
  How Preh Eases Product Costing with SAP | SAP News Center
• SAP for Automotive Blogs
  How Automotive Companies can monitor product costs… – SAP Community
• Insights from a U.S.-based IT consulting firm
  Mastering SAP Product Lifecycle Costing for Optimal Efficiency – Surety Systems
• Official SAP Analytics Cloud website
  SAP Analytics Cloud | BI, Planning, and Predictive Analysis Tools

---

Disclaimer

Parts of this article were developed with reference to generative AI suggestions and were reviewed, refined, and supplemented based on the author’s professional expertise and judgment.

---

Back to Top