Prices for semiconductors have risen steadily since 2020, and the increase is likely to continue for a while longer. According to the U.S. Bureau of Labor Statistics, businesses in the U.S. paid 8% more for chips in July of 2022 than they had a year earlier, and experts predict a similar increase this year. These price increases are having a significant impact on electronics manufacturing.
While there’s not much electronics manufacturers can do about the cost of the chips they use, it is possible to offset this price increase by streamlining manufacturing processes and optimizing the use of materials. Here are four steps you can take to keep a lid on the price increases you pass along to your customers.
Simplify Your Bill of Materials
It’s a standard rule of thumb that the more unique pieces you use to make your product, the more expensive it will be. So, whenever you can use the same component for more than one purpose, do it. Adopting a common platform architecture—using as few unique components as possible—will enable you to buy parts in larger quantities, allowing you to qualify for bulk discounts.
Simple components, such as screws, are especially well suited to common platform architectures. Instead of using a unique screw for every one of 16 distinct functions, for example, use one screw as many ways as you can. This might let you cut back from 16 types of screws to five and enable you to save money by buying your screws in larger quantities.
Even more complex components can perform double, triple, or quadruple duty. Surface mount resistors are a prime example. It may be more elegant to design your board with optimally sized resistors in every position. But buying resistors in four sizes, for example, can be expensive. It is often more efficient to consolidate your component package, simplify your bill of materials, and benefit from bulk discounts.
Similarly, you can sometimes reap significant savings by switching from custom components to off-the-shelf ones. That custom connector may be ideal for your product, but if it’s not available in stock and must be ordered from the manufacturer, you may pay more. Switching to an off-the-shelf counterpart will not only cost you less, but it will also be easier to source. And do you really want to be dependent on one source for a critical part?
Sometimes companies turn to custom components because their products are aging, and parts are getting harder to source. But in that case, the answer is not to bend over backward to find increasingly scarce components. Maybe it’s time to consider a redesign.
Clean Up Your Electronics Manufacturing Processes
Whether you are updating an existing product, or bringing a new device to the drawing board, it is important to design with manufacturing in mind. Designing a clean product may offer lower material and labor costs and reduce risk.
Concurrent manufacturing, in which the product’s design and the manufacturing process are viewed as one single design challenge, can optimize your product’s functionality, and lower the cost of its production. Concurrent manufacturing lets you step back and look at the total cost of making your product.
The reality is that the cheapest part isn’t always the least expensive—not if it raises your labor costs by more than you save on the part. PCBs are a case in point. A slightly more expensive board, one that enables you to add test points to the bottom, can reduce your overall manufacturing cost by making it possible to easily test your product, ensuring a consistently elevated level of quality. Keeping such factors in mind as you design your PCBs will save you money later.
Similarly, designing your product to minimize the number of unique parts doesn’t just simplify your bill of materials, it also reduces your labor costs. Any time you can minimize human motion, you speed up assembly. To go back to a previous example: Designing a product that uses only five unique screws instead of 16 means that workers are pulling components from fewer bins and need to be familiar with fewer components.
Considerations like these are why it is useful to loop in your manufacturer at an early stage before your product design is set in stone. If you allow your EMS provider to examine your product’s CAD files or Gerber data, they can suggest changes before you build your first prototypes. This can speed up your design process, reduce your manufacturing costs, and get your new product to market quickly.
At every stage of the design and manufacturing process, innovative technologies are introducing greater efficiencies. But even fans of the latest technology don’t always utilize it to its full extent.
Virtual prototyping is one such example. You are probably using CAD programs to create and manipulate prototypes virtually before you invest in physical versions. That is a smart use of the technology. But have you thought of sharing your CAD data with your EMS provider?
There are several advantages to doing so. Not only can your manufacturing partner vet your design for ease of manufacturing and testing, it can also use that data to design jigs and fixtures without having to measure your product. And examining your product virtually also enables a manufacturer to provide a more accurate quote—so there aren’t any surprises when the assembly line starts up.
Make sure your EMS provider is using their technology creatively as well. 3D printing, for example, is becoming more common. Now your EMS provider can skip the machinist and make their own custom jigs and fixtures, as well as specialized, ESD-safe, product-specific tools. This capability can save you both time and money.
And that is just the beginning. Now, instead of waiting for a final working version of your PCB, your manufacturer can 3D print one from your CAD files and jumpstart designing supporting components such as the case. And once your final product design is near completion, your EMS provider can 3D print a replica of your device and use that replica to design the packaging for your product—and even determine shipping costs. This means that you will be ready to start shipping your product as soon as it’s built.
Optimize Your Supply Chain
With supply chains showing signs of continued instability, inventory control is more critical than ever before. Fortunately, innovative technologies are making it easier to manage the stocks of both inputs and warehoused products.
With component parts, it is important to keep enough on hand to avoid a production slowdown, without paying for unnecessary warehouse space. For some parts, it makes sense to buy 18 months of supply at a time. With others, buying enough for six months will be sufficient. The trick is figuring out the right amount for both so that inventories align with build schedules. If a microchip is getting low, does that mean the manufacturer is getting behind? Or is it the result of a temporary spike in customer orders? Your strategy for managing the shortage will be different depending on the answer.
It is important to know which components only need a six-month supply, and which require hoarding. A good manufacturing partner can alert you to changes in component status and advise you on how much you should carry.
For finished products, your EMS provider should be using barcode scanners to gather real-time data, so that it can precisely track lots and batches of your product. This not only lets you maintain stock equilibrium, but also makes it easy to manage returns and get an accurate read on inventory levels at a moment’s notice.
As with design and manufacturing, you may have to make counterintuitive choices to optimize the amount of finished product you warehouse. For example, it may make more sense to build your products every quarter instead of every month. The inventory costs will certainly be higher, but it’s still worth it if the manufacturing savings are greater than the increased warehousing expenses.
Supply chain calculations like these are fluid and complex, and so require close communication with your contract manufacturer. For this reason, electronics OEMs are tightening communications with their manufacturing partners, sharing more data and—in some cases—moving manufacturing back to the United States.