Competitive-Cost Analysis: Cost-Modeling Techniques

Abstract

The second in a series on competitive-cost analysis, this note provides a general discussion of four specific tools that will further assist in analyzing cost drivers for competitive analysis. These techniques include teardown analysis, public data sources, scale curves, and utilization curves.

Excerpt

UVA-OM-1255

Rev. Aug. 9, 2018

Competitive-Cost Analysis: Cost-Modeling Techniques

Competitive-cost analysis, a method for analyzing the cost structures of two competing companies, represents a strategic application of cost modeling. The first note in this three-part series on competitive-cost analysis (see also UVA-OM-1254 and UVA-OM-1256) identified the basic conceptual framework and principles for developing accurate and comprehensive cost models with four categories of cost drivers: design, facility, geography, and execution. This framework, coupled with cost-modeling techniques, can help the operations analyst or consultant achieve the quantitative rigor needed to ensure solid operations decisions at the strategic and tactical levels. This note discusses four tools that can be used to analyze cost drivers: teardown analysis, public data sources, scale curves, and utilization curves. The final note provides step-by-step guidance on estimating scale curves and calculating utilization impact.

Teardown Analysis

Teardown analysis consists of the physical disassembly and piecemeal analysis of a complete product. Common among engineering organizations, the typical teardown analysis looks at competitors' products to track new features or design choices that could be applied to the company's own products. For example, for many years General Motors (GM) maintained a facility in Detroit that dedicated more than 50,000 square feet to the display of disassembled vehicles from competitors. Engineers from across the company visited the facility (known internally as the “Mona Lisa Center”) to examine specific parts such as the brake system or seat assembly. Such information can prove particularly useful in quantifying the design-driven costs in a competitive-cost analysis.

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Keywords: cost drivers, competitive analysis, cost modeling