To stay competitive in today’s extremely tough markets, electrical engineers have to not only be technically adept at designing in components that give their products a competitive edge, but they also have to know the best practices in assuring that the Bill of Material (BoM) costs are as low as possible. As the electronic component BoM cost usually represents the single largest cost element of an end-product, being good at controlling these costs can give companies in saturated markets a competitive edge.
The field applications engineers at SemiElectronics have come up with the 3 top items that engineers should pay attention to during design process and beyond to leverage the best BoM costs possible.
Have Multiple Sources on the Approved Vendor List (AVL)
Though it is much easier to have multiple sources for a chip resistor than it is a 32-bit ARM Cortex microcontroller, it is important that engineers build an approved vendor list (AVL) that give contract manufacturers, distributors, and buyers something to work with. Having these options available will not only facilitate the competition necessary to leverage the best price, but it will also give you options on the manufacturing end if a component has a long lead time or is on allocation. Some companies, usually with layers of supply chain managers and global commodity managers, will add up to 10+ sources for a given part. As most companies seem to be handling this function with a limited number of participants, we say that about 3 suppliers on an AVL will usually suffice.
To aid in the process of building out AVLs, there are many online resources that offer automated services to expand your AVLs, manage product lifecycle, etc. A few of our favorite paid services are SiliconExpert and IHS. The major distributors such as Arrow, Avnet, Future, Digikey, and Mouser also offer similar services for free with the expectation that it users will buy their components from them.
Avoid or Minimize High Average Sales Price (ASP) Products
This section probably seems somewhat obvious, but with aggressive development times and product launch cycles, it sometimes becomes necessary to design in components that speed up time-to-market, and these products will inherently cost more. Though some of this is unavoidable, it’s important to know the commodity classes of the major cost contributors where engineers might have some latitude to design in less expensive options:
- Magnetics are typically made up of copper and iron and will be a major contributor to costs. Often times, it’s possible to design in power components such as DC/DC converters or switching regulators with higher switching frequencies, which will decrease the size of magnetics. Engineers should pay close attention to this commodity.
- Connectors have an extremely high ASP and can sometimes be avoided with some creative PCB design or enclosure modifications. If a connector is required, it should be as commoditized as possible such as .100 “bed of nails” headers, etc.
- Thermal Management products such as heat sinks, fans, heat spreaders, etc. have a fairly high ASP. If it is possible to have a creative enclosure design that facilitates more airflow or have semiconductors and modules in the design that are more efficient and generate less heat, this could help minimize or lessen the need for thermal management products.
Understand the True Production Volume BoM Costs
We see it all the time where engineers just use Digikey’s 1k price for each component to determine the BoM cost. To help determine the true commercial viability of a product, and to arm the company by establishing true cost baseline, it’s important to know the actual mass production volume costs prior to asking a contract manufacturer quote the board. To do this effectively, the actual projected volume, manufacturing site, and production timeline must be known.
After the information above is known and a complete BoM/AVL is built, simply send this out for a quote through distribution. Once the quote is received back, the final BoM cost rollup should have the lowest prices populated along with the distributor that offered them. This will help expose the manufacturing cost more clearly once a PCB assembly is quoted through a contract manufacturer. It will also, unlike starting from Digikey’s 1k price column, give companies a more advantages baseline to start leveraging better costs from suppliers.
If close attention is paid to the points above, we believe this will help the engineers gain a competitive edge for their products in the markets they participate in. Especially in smaller companies without supply chain or purchasing resources, it is critically important that they do all they can do to keep costs under control.
Have something you’d like to add to this conversation? Please let us know in the comments below!