Cost Management in the New Product Introduction Process of ...

Master Degree Project in Innovation and Industrial Management

Cost Management in the New

Product Introduction Process of

TruPrint 1000

A case-study of TRUMPF Maskin AB and its costs of Introducing New

Additive Manufacturing Systems to the Swedish Market

The Institute of Innovation and Entrepreneurship

Department of Economy and Society

Odia Okhiria

Supervisor: Daniel Ljungberg

Master Degree Project

Graduate School

Abstract

The current trend within the manufacturing industry is increased digitalization, automation, and customization,

known as Industry 4.0 or the Fourth Industrial Revolution. Additive Manufacturing (AM), also known as 3D

printing (3DP) can be considered as one spark of Industry 4.0. AM technologies can be applied to a wide range

of industries, from manufacturing of steel and metal products to paper and plastic products (Gao et.al, 2015,

Thompson et.al, 2016). Their flexibility and speed enables mass customization of products that can have

virtually any geometric shape. Products with new complex shapes can be manufacture in one machine and in

one-step process which enables fast processing. Furthermore, AM technologies surpass conventional techniques

both in terms of low costs and high functionality when used to produce customized and complex products

(Theisse et.al, 2015). For example, AM have realized significant cost savings in the aerospace industry by

enabling new lightweight components and enhanced features. Thus, 3DPs are highly accommodated for a pullbased, mass customized, decentralized and interactive manufacturing which Industry 4.0. partly aims for (Lasi

et.al., 2014). However, demands on these new technologies impose new costs to AM providers, especially in the

New Product Development (NPD) process and New Product Introduction (NPI) process. To improve the

planning of the NPI process, and as a consequence, help the decision-making process of resource allocation and

investments, costs need to be estimated and allocated. Hence, metrics needs to be developed that can support the

strategic management and process improvement in the NPI process.

TRUMPF Group is one of the leading developers and suppliers of advanced technologies for industrial

application and manufacturing. It offers a wide range of technologies and services to manufacturers, allowing

them to take advantage of current trends in the manufacturing industry. Among its latest innovations are the 3D

printers: TruPrint Series used for industrial application. This product group was announced in 2015 as part of

TRUMPF product portfolio and among the products was TruPrint 1000 which can realize many benefits for the

metal industry (, 2015). However, the development and introduction of new technologies and

products affect a company¡¯s cost structure spanning from R&D facilities to Strategic Business Units (SBUs).

TRUMPF Maskin AB is one of its SBUs responsible for the NPI process to the Scandinavian market. Examples

of activities included in this process are marketing, machine-sales, technical support, logistics and after sales

services. New products require both internal and external customer training. Internal customers demand product

information and resources to enable and optimize the NPI process. The external customer needs education of

how to exploit the opportunities of the new products. Thus, new metrics and cost models are necessary that

measure the cost of activities in the NPI process, supports strategic planning and enables improvement of these

activities.

¡°If you don¡¯t measure it, you can¡¯t manage it¡±

This thesis examines the cost of activities in the introduction of the metal 3D-printer TruPrint 1000 from

TRUMPF Group to the Scandinavian market and analyzes:

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?

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The activities in the new product introduction process in TRUMPF Maskin AB, with emphasis on the

metal 3D printer TruPrint 1000. The activities are identified and included in a process map.

NPI metrics and time-driven activity based costing (TDABC) are used for developing a novel cost

model for the NPI process. This cost model aims to be used as framework in which all costs can be

recorded and allocated or apportioned to the activities involved in the NPI process of TruPrint 1000 and

similar technologies, supporting strategic management and process improvement.

How the costs affect the business performance of TRUMPF Maskin AB.

Contribution margin for TruPrint 1000.

The new product introduction process is used as a synonym to the New product introduction process. These

processes look different depending on firm characteristics and context. The new product introduction process is

for this study categorized into four activity centers in which related activities in the NPI process takes place:

1.

2.

3.

The laser-machine sales department (new product documentation, NPI process development, new

product training, new product project management, negotiations, contracting and sales),

The marketing department (new product promotion, advertisement, new product event planning and

coordination, customer contact, customer relationship management etc.),

The after sales services department (new product service and material preparation, technical support

training, maintenance training, installation training, customer education services, spare-parts

administration, product enhancements, service level management etc.),

Master degree project 2017-06

Odia Okhiria

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4.

And the Tech-Days/new product show event.

Preface

This paper presents the final thesis of a master degree research project from the MSc in Innovation and Industrial

Management programme at the School of Business, Economics and Law: Gothenburg University. It is

collaboration between the Institute of Innovation and Entrepreneurship at Gothenburg University and TRUMPF

Maskin AB in Alings?s.

I especially want to give thanks to my supervisor at TRUMPF Maskin AB, Mr Hubert Wilbs, for his tireless

support, vast knowledge and insightful ideas. In addition, many thanks to Ms Karin Gustafsson, Mr Mikael

Olsson, Ms Benitha Benjaminsson, Ms Anna-Karin Baldreus, Mr Henning Kristensen and many more at

TRUMPF Maskin AB for sharing their knowledge and enabling this project.

Furthermore, many thanks my supervisor Dr. Daniel Ljungberg at Gothenburg University for his support and

expertise knowledge in innovation management and innovation performance.

It has been a very insightful journey, getting to know all the perks and pitfalls in new product introduction and

cost management. Though the more information I obtained on the subject, the more I knew I did not know.

Gothenburg, June 2017

Odia Okhiria

Master degree project 2017-06

Odia Okhiria

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Table of Contents

1. Introduction ............................................................................................................................ 9

1.1. Background ........................................................ 9

1.2. Problem discussion........................................... 10

1.3. Case description ¨C TRUMPF Maskin AB ........ 11

1.4. Purpose and research question ......................... 11

1.4.1. Selected Research questions ......................... 11

1.5. Objectives......................................................... 11

1.6. Delimitations, Abbreviations & Research

Overview ................................................................. 12

2. Literature review .................................................................................................................. 14

2.1. Context: The cost object¡¯s/product characteristics

- The AM Process and its Application .................... 14

2.1.1. Context: The Market (opportunities) of AM Past, Present & Future ............................................. 16

2.1.2. Context: The Benefits of Additive

Manufacturing ¨C New Machines Building the Future

................................................................................. 17

2.1.3. Context: Identify the AM Challenges and

Manage the New Product Costs .............................. 19

2.2. Strategy: Translate the vision & Align Metrics

with Strategy to Achieve Corporate-wide Goals..... 21

2.2.1. Strategy: How to Align Metrics with Strategy

................................................................................. 22

2.3. People: The Enablers of Strategy, Process &

Measurement ........................................................... 23

2.4. The Process Approach: What to Measure,

Manage and Improve............................................... 23

2.4.1. Process: The NPD structure .......................... 24

2.4.2. Process: The New Product Introduction

Process .................................................................... 25

2.4.3. Process: The Post-Introduction Process - After

Sales Services .......................................................... 26

2.4.4. Process: Value-Added Services and Education

................................................................................. 26

2.4.5. Process: Summary of the New Product

Introduction Process ................................................ 28

2.5. The Nature of Measures and Metrics - Why

measure?.................................................................. 28

2.5.1. The pitfalls of Metrics ................................... 30

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2.5.2. Avoiding the pitfalls of Metrics .................... 31

2.5.3 Building a framework for metrics .................. 32

2.6. The Nature of Measurement Systems: A system

of Metrics ................................................................ 34

2.6.1. Building a Measurement system ................... 34

2.6.2. Challenges with Measurement Systems ........ 35

2.7. Costs, Time and Quality: The Key Success

Factors of the NPI process ...................................... 35

2.7.1. Costs - Assigning costs & Cost systems ....... 38

2.8. Costing model ¨C The Activity Based Costing

System ..................................................................... 39

2.8.1. Costing Model - The Elements of the ABC

Model ...................................................................... 39

2.8.2. Costing model - Practical evidence using the

ABC model ............................................................. 43

2.8.3. Costing model - ABC & Business Context ... 44

2.8.4. Costing model ¨C Developing the ABC.......... 45

2.8.5. Costing model - Challenges with ActivityBased Costing ......................................................... 45

2.8.6. Costing model - Time-Driven Activity-Based

Costing .................................................................... 46

2.8.7. Costing model ¨C A practical example of

TDABC ................................................................... 47

2.8.8. Designing the TDABC .................................. 48

2.9. Information for decision making ¨C Activity

Based Management (ABM) .................................... 49

2.9.1. Information for decision making ¨C Income

effects of costing system ......................................... 50

2.10. Cost model communication challenges .......... 52

There are several risks and challenges associated with

the implementation of the cost model. Some of the

most challenging concerns the engagement and

communication between managers, cost model

developers and users as illustrated in figure 21 (next

page). ....................................................................... 52

2.11. Literature summary ........................................ 53

3. Method ................................................................................................................................. 54

3.1. Research Design ............................................... 54

3.1.1. Research Design: Case-study details............. 55

3.1.2. Research Design: The process of the casestudy ........................................................................ 56

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