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Electronics engineers and designers often approach design to cost through a narrow lens; the only cost reduction opportunities are found in the PCB layout and the BOM, but not much elsewhere. The realities of global production, low volume vs. high volume production, importation, and geopolitical risks can influence costs to a much greater degree than your BOM. To make sure you can hit cost targets, consider these points that factor into the landed costs for your components, and ultimately your final product.
Factor In Landed Component Costs
When you start to break down the cost structure of a new product, landed costs for components can take a significant portion of the per-unit cost. After factoring in costs involved in tariffs, logistics management from overseas facilities, and back-and-forth shipping costs, landed costs for components become significant. Part of cost reduction for this area of product development requires balancing production and parts costs with the management and logistics costs incurred in taking a product to market.
Shipping Costs
Shipping costs are typically an afterthought in PCBA prototyping, especially when all your components are ordered from a single distributor. In just about every real product, components are provided by multiple distributors, and the shipping costs can add up quickly. This is also true for overseas shipping costs for products assembled locally.
When weighing the best location to procure components, have them assembled into a PCBA, and have the final product assembled and packaged, shipping costs become an important factor. Does it make more sense to ship everything from overseas distributors and import your finished product, or should you have an overseas factory help you manage procurement from their local vendors? Make sure to examine all options and determine the cost differential.
Tariffs and Duties
Tariffs are a direct tax applied to finished goods that a company import from a different country, while customs duties are indirect taxes that are imposed on consumers by direct carriers. Whether you purchase imported goods from a local company, or you import yourself, you might be hit with duties and tariffs on the goods, and this certainly applies to electronic components imported from overseas.
Logistics Costs
Managing logistics for a production run, whether handled by your contract manufacturer or your own team, should also factor into your production budget in some way. Contract manufacturers who handle procurement for clients will include this in their costs, so the fee for handling logistics is not always transparent.
The other option is to handle logistics internally. Larger companies have dedicated teams that handle the above points and streamline the production process. Smaller companies typically need to make tough choices as to whether they contract out their management, or whether they use a third-party logistics (3PL) provider to help streamline the process. A 3PL cam provide significant value by streamlining ordering, warehousing, inspection, and kitting for component orders.
Quality Control
In some regions of the world, labor costs carry a higher premium, and for good reason. In the electronics industry, workers and companies in some parts of the world have become steeped in quality control knowledge, including the standard set of QC certifications like ISO-9001, AS9100, and six-sigma. While production in some overseas locations might be budget friendly, make sure it comes with a verifiable quality control program, especially if you produce for a highly regulated industry like medical or aerospace.
The Value of Time
Finally, all of the above points contribute to intangible costs that are more difficult to quantify in terms of a dollar amount. The biggest intangible cost is lost time and delivery delays for a finished product. Customs holds, delays with suppliers, delays in assembly, and the potential for rework all contribute to lost time.
Design For Cost Opportunities in Your Layout and BOM
While all the above points concern factors that aren’t visible in component costs from distributors, there are always opportunities to optimize costs in your BOM and in your PCB layout. In the process, you might find some opportunities to reduce landed costs for your components and de-risk your product.
Some of the simple design for cost options that are easy to implement and that can greatly reduce production costs include:
- Consolidate passives and common ICs to the same part numbers to get volume discounts
- Replace QFNs and BGAs with equivalent leaded packages when possible
- Use lower precision passives where appropriate, don’t use 1% or higher tolerance parts if you don’t need them
- Use larger case passives (0402 or 0603) if space is not a challenge
- Use parts with larger lead sizes if this allows you to use larger trace sizes
- Use a consistent drill size where possible and opt for larger diameter drills
- Stay away from non-conventional builds and materials unless absolutely necessary
- Stay away from parts brokers unless absolutely necessary
For anything that involves part selection, it’s best to use a 3PL platform that includes full visibility into distributor stocks, broker stocks, parts specifications, and warehoused inventory to help you plan production runs. Before you finalize your BOM, make sure you reduce your cost risk and source your parts with a logistics platform like Cofactr.