Negotiating lower per part prices only does so much to reduce costs. Here are some unexpected ways to capture component cost savings when sourcing.
Manufacturers are always on the lookout for cost-cutting measures. Particularly in the hardware market, fraught with razor-thin margins, rising cost of electronic components forces procurement pros to search for new and better ways to trim hidden fat from the total cost of manufacturing. These component cost savings can make all the difference in creating a profitable product.
Getting beyond component cost
The cost of making an electronics hardware product includes more than the cost of the capacitors, resistors, and semiconductors. To really understand the best way to cut costs, examine the whole equation. Consider other elements that contribute to cost, such as:
- The cost of labor, which shifts depending on where manufacturing is done
- The cost of molding
- The amount of scrap created
- New tariff fees
- The cost of inventory strategies related to supply shortages and lengthening lead times
- Costs associated with mistakes that demand redesign or remanufacturing
Estimating the total cost of a getting a product off the production line is often difficult to estimate and can change over time. At the very least, manufacturers need to make sure they work with their sourcing partners to address as many variables as possible.
5 best practices to shrink production costs and capture component cost savings
The price of each electronic component is important, but a handful of broader strategies offer other ways to cut total cost. Here are five things to think about:
- Consider cost early. Optimize production costs from the earliest days of design. It’s both easier and more effective.
- Pick off the shelf. Encourage product engineers to collaborate with their distribution partner to design off-the-shelf parts when possible. Custom products add cost.
- Pick fewer products. Make the number of products on the bill of materials (BOM) as short as possible — which gives you more buying power and a simpler sourcing equation. For example, rather than multiple types of resisters would one suffice?
- Slim down. Smaller is cheaper. The size, weight, volume, and cost of a product are all interrelated. Look for ways to reduce cost by streamlining the materials used.
- Leverage trust. Work to take advantage of the trust-based relationships that your distribution partner has built with key suppliers. They may be able to help on a variety of fronts including lead times, volume pricing, and more.
Mistakes are expensive
Mistakes can happen, especially in complex and costly electronic designs — and finding them is a critical path to component cost savings. Common mistakes range from typical spreadsheet errors to erroneous assumptions that are baked into the design. Josh Savage, general manager at robotic toy maker Sphero in China, offers some best practices aimed at reducing costs in a Medium article:
- Check the BOM to make sure it contains the same number of components as the quotation.
- Confirm pricing, both increases and decreases. Surprises later in the process are disruptive.
- Understand and track the significant cost categories of product manufacturing. Drilling down and adding granularity provide a better chance at spotting places where savings can be captured. Start with the most expensive categories first.
- Consider whether it is worth simplifying the product design, by eliminating a feature or two, to reduce the associated cost.
To summarize: In electronics manufacturing, OEMs need to get creative and enlist the help of experienced distribution partners to capture component cost savings and remain successful in a competitive market.