How to reduce Engineering Bill of Material Cost for electronics products?

Question

What is an effective method to re-engineer a current product to reduce engineering bill of material (EBOM) cost?

This is a continues improvement project for a current product in electronics space. Attached is an example of a PCB board. The product consists of many similar boards. The BOM includes active and passive electronic components such as capacitors, resistor, microprocessors, transistors, PCB boards, connectors etc.

What is an effective method to tackle this engineering cost reduction problem?

Answer 1

There are few generally accepted methods to use to reduce EBOM cost in electronic industry?

Group EBOM components using one or both of the following criteria

• Type of component, (example: capacitors, microprocessor, inductors, resistors, transistors etc)
• Vendor or Manufacture

Then start looking for common components. These could be simple as looking for such 1uF value capacitors. Don’t forget to look for components in the adjacent in value. There might be an opportunity in the design to use a larger or small component without affecting the design. Then look for cheaper alternatives. This also helps to obtain volume based discounts.

Another method is to group the components by price, start from most expensive components to the least expensive. The tabulate your results in a Pareto chart and focus on the top 20% of the components. Use the 80/20 rule. This concept commonly used in Supply Chain for insurance purposes which states 80% inventory cost is in 20% of the high value inventory. Therefore, cost reduction from the top 20% of component (cost base) will have 80% impact on the overall cost reduce effort. This is a concept that is hard to grasp.

Looking at component size is also a good idea. Consider changing larger 1206 or 0805 type SMT components to smaller 0402 or 0201 from factor components. Make sure the product design is not compromised.

Sometimes the PCB board is a good candidate for too. If the current design is 12 layers then look at possibility of reducing the number of layers without impacting the design.

If you have module such as a blue tooth, WIFI or ZIGBEE module consider replacing the module by discrete components. In this case you might have perform test EMC testing to verify if the system meets regulatory requirements

For cost reduction purpose outside of the EBOM

Look at the SMT and other manufacturing process such as Test. Using DFM & DFT strategies there is a significant opportunities to reduce product cost. SMT machines have a limited capacity, therefore strategic parts placement can gain higher throughput reducing product cost.

Summary: There is no golden rule, other than professional work experience and seeking help from peers.

Answer 2

This is quite a vague question, so only a very broad and vague answer can be given. Here are some ways to achieve this:

• Invest in marketing to increase sales, or hold more stock, so that you can buy parts in larger quantities and get better pricing.
• Negotiate with suppliers and make a commitment to buy a large quantity over time in order to get better pricing without a large initial investment.
• Look for areas of your design where some parts are potentially unnecessary. For example non load-bearing parts may be clipped on or glued in place rather than using bolts. Fewer or smaller parts may be used in some areas, etc.
• Split your product into a core product with optional add-ons to reduce the base-price for entry-level customers.
• Look for alternate materials and alternate parts that achieve the same function without compromising the product design goals.

Answer 3

I agree with jhabbott that this is pretty vague. Here are some more ideas:

• Buy in bulk. In most cases, it's much cheaper per item to buy ten items that it is to buy one. The companies selling you the materials will most likely give you a slightly cheaper price, which they'll sacrifice in return for the larger order. This rule may not apply for any materials that have to be used very quickly after they are purchased.
• Buy more, and buy what you can sell. This is a little bit unorthodox, but it could still work. Buy more than your plans indicate you'll need. This way, even if you've properly planned everything out, if a problem crops up, you'll have extra materials, and you won't have to put the project on hold to get more. The latter part of this bullet means that you should be prepared to resell additional materials that you don't use. Clearly, there will be a whole lot of things that can't be resold. But some surplus items may be marketable when the job is done. For example, if you were 3D printing an object, you could resell some of the unused plastic. Alternatively, save this materials for another, later project.
• Get some of the above materials. In many cases, it might be cheap to buy materials from a company following the above bullet. They might be happy to get some items off their hands, and you could get a good price for it. This reminds me of banks foreclosing (not a prefect analogy). They'd like to get rid of the house because while they possess it, their asset is simply sitting there. They can't profit from it. So they'd like someone to buy it.
• Haggling with suppliers. Curses, jhabbott beat me to this. Anyway, be aware that the purchase price isn't necessarily the price you have to pay. Again, some companies might be willing to offload some materials for a lower price. Don't be afraid to haggle if you have to, although large-scale project managers may not be too happy to see this technique used.

Answer 4

In addition to the above answers:

1. "Standardization", using standard parts throughout the company for similar functions.
2. Increasing commonality between products (like common power boards, common interface boards, common mechanical parts, etc).

These would also cut down on design and test efforts, as well as decrease the diversity of inputs and hence optimizing the purchase prices.

3. Cost-cut targets can be given for both developers and the purchasing departments, so that the teams would try to optimize the design and the buy-price.

Answer 5

Look at the whole product cost, not just the electronic parts. It's quite possible that those represent a relatively small part of the overall cost. For example:

1. What is the cost of assembly? Your picture indicates reasonably modern parts that are amenable to modern volume production techniques. Are these really being used, and used effectively? Are you producing these devices in sufficiently large batches so that the manufacturer can use up whole reels of parts, for example. Have a talk with your manufacturer and ask him what is causing him pain.

2. What yield is the raw assembly process getting. If too low, find out what the one or two most common problems are and see if a small re-design can fix it. This might be as simple as making some pads larger, or smaller, or better thermally balanced. Again talk to the manufacturer.

3. What is the cost of test/calibration? If this is labor intensive, perhaps you can create a automated test jig to reduce the time.

4. What is the field cost? Having to send a technician to fix a problem for even just 1 in 10000 units will dwarf savings of using a few cheaper capacitors, for example. Find out what's failing and re-design to address it.

   My boss at my first job out of school had a nice way of visualizing failure costs. If it takes $500 to do a field repair because of a cap that fails in one out of 500 units, think of it as sending out the unit with a dollar bill wrapped around the cap.

5. Once you've gone thru all of the above, then you can take a quick look at the BOM cost. This is often the smallest part of the problem, but too often the first place inexperience engineers go to save money. It can also work in reverse. $.25 extra for a over-specified electrolytic cap that reduces expensive field failures may well be a cost saving measure. Then also consider the hidden and less quantifiable costs of field failures, like customer dissatisfaction and loss of reputation.

Answer 6

In addition to the above,

• Consider arrayed components instead of discretes. i.e., a 4-unit 1k SMT 1206 for an IC's pull-ups instead of 4pcs 1k 0805. Saves board space and assembly time also.
• Weigh the expense of going double-sided with any possible reduction in PCB footprint.
• If out-sourcing PCB fab, component assembly, final assembly... call around. Discuss larger orders.
• If in-sourcing the previous, look at tools, jigs, fixtures, supplies, binning, lighting, proper seating and work area... anything that can help improve speed and efficiency.