The development of a hardware product is no more an easy task. Many challenges are associated with this development, such as shortage of component supplies, a hike of lead times, increase of component and labor costs, etc. Hardware companies must be able to optimize the Bill of Materials or BOM cost to survive in their competitive industry. Unfortunately, many businesses do not know how to reduce or optimize BOM costs. Hiring sourcing companies can help such businesses to address this issue. Even when you are hiring a third-party company, you need to learn some practical ways through which lowering the manufacturing costs is possible. Go through this blog to explore some vital tips on reducing the manufacturing costs of your hardware products.
How to Reduce Product Manufacturing Costs
1. Thorough Check-up
Product BOMs may seem complex, and mistakes are common in the case of the first quotation. It must be put together as soon as possible so that you can meet the deadline. Some common mistakes, relating to the first quotation are:
- Primary spreadsheet errors
- Inclusion of more or fewer components
You need to carefully check the entire quotation to find mistakes and if you find any mistakes, rectify them before heading towards the next step.
2. Cost Overview Analysis
You should create a summary table to understand the cost categories (for instance, plastic, components, packaging, labor, etc.) Some factory quotations may provide you with a good summary but if you can spend some time on creating customized products, you should delve into the details. You may need to segregate the labor into key operations, or you may break down the packaging costs into multiple units. Cost overview analysis makes BOM cost reduction a little simpler for a business.
3. Drop-in Replacement Components
Manufacturing of electronic devices may need some components for which you can easily find locally available drop-in replacements. Passive components are easy to replace while active components may need little firmware changes. You should ensure that you are replacing the right components and they will not have any adverse impact on the overall performance of the product.
4. Battery Quality Check
Battery plays a vital role in the manufacturing of many electronic devices. Also, it is a vital cost included in BOM. While contracting new factories, you should determine whether they have all important certifications and compliance documents upfront or not. If they fail to provide such documents, you don’t need to waste your time considering their battery.
Moreover, you need to arrange an onsite visit as it will help you ensure that the suppliers have all required procedures and testing tools in place. If you do not have an experienced in-house team to look after this matter, you can consult sourcing companies who can help you conduct an onsite inspection.
When it comes to cost reduction, packaging is the easiest area to deal with. It does not need any changes in firmware or long-lead-time tooling. You need to stick to a target price in your mind and ask for advice from your packaging suppliers. They can help you learn how to leverage maximum benefits out of packaging while reducing costs.
6. Minimum Order Quantities
You need to discuss the Minimum Order Quantities or MOQs with your suppliers. You can start with the costliest components. If you have found that some parts are used in the manufacturing of other products, it is better to categorize them in order and try to strike at a lower price. You need to maintain a balance- larger MOQs will decrease the unit costs leading you to a cash-flow and warehousing cost. This balance is much needed for BOM cost reduction.
Many factories are not prepared to provide their customers with a detailed breakdown of working hours/rates and they mention a labor cost only for the primary areas, such as molding, electronic assembly, and some other operations including decoration. Hence, you need to negotiate on the labor costs trickily. It is better to wait for the design to be completed so that you can point out some of the major labor areas and ask your manufacturers to be re-quoted and increase their efficiency.
8. The help of Sourcing Companies
Dedicated sourcing companies have been dealing with diverse manufacturers over the years. Therefore, they are more knowledgeable than your in-house team. They know how to lower the manufacturing cost and enhance manufacturability. You should work with them. You might be thinking that hiring such companies would be a costly affair, but it would be less costly than the increasing manufacturing costs. Moreover, maintaining a permanent in-house team for manufacturing cost and logistics management would be more costlier than the services offered by the third-party sourcing organizations.
9. Product Scope
In some situations, BOM cost reduction is not possible without eradicating a feature. To deal with such cases, you need to clear the way for a proactive discussion about what to eliminate. You should review the product specification and estimate the costs associated with each feature. Sometimes you may find a feature that is causing more than your estimation and adding no value to the customer experience. You should eliminate this type of feature.
Do consider the ways discussed in this blog to reduce your manufacturing costs. Take your time, study well, and implement what you learn!
A really useful article on the importance of BOM cost reduction and optimisation. Thanks for sharing.
The views and methods stated in the article are very effective and constructive for reducing costs，thanks for your sharing!
I’ve found it very interesting suggestions to be applied, adhoc. Thanks for sharing.
It’s new opinion and useful for manufacturing companies during crisis period.
Thank you, Hanh for your comment.